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JAMB Commerce 2008 Question 16

Question 16

Banking

In order to prevent liquidity problems in commercial banks, the central bank uses

  1. A.moral suasion
  2. B.fiscal policy
  3. C.reserve ratio
  4. D.taxation.
Show the answer and explanation

Answer: C (reserve ratio)

Explanation

The reserve (cash/liquidity) ratio forces banks to keep part of their deposits in liquid form, so they can always meet withdrawals.