Why do banks hold reserves?

Question

a. To meet the cash needs of their depositors.
b. To pay depositors in gold.
c. To buy real estate if prices fall.
d. To buy stocks that go unsold.

Answer 1

The correct answer is: a. To meet the cash needs of their depositors.

Banks hold reserves primarily to ensure that they have enough cash available to meet withdrawal demands from their depositors and to fulfill other obligations. Reserves help maintain liquidity and stability in the financial system.