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(b) Minimum capital requirements mean that a bank must hold a minimum amount of currency in...

(b) Minimum capital requirements mean that a bank must hold a minimum amount of currency in its vaults and settlement balances at the central bank. Is this true or false. Briefly explain.

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Answer #1

False. The explanation provided is a suitable for reserve requirement in which depository institutions must keep a portion of their deposits as reserves in their vaults and at the Central Bank. Minimum capital requirement is a legislation in which the depository institutions are required to keep a minimum amount of capital which are basically the easily sold assets in order to keep the institution liquid. The difference lies in the fact that it is the liquid capital and not the reserve that are required to be kept.

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