Question

50. When Mr. Smith in Briantown, Maryland uses a check to buy a tractor from Mr. Brown in Austin, Texas, _______ different banks are involved in the transaction and the need to clear the check through local banks and Federal Reserve banks.
   a. 2

   b. 4
   c. 6

   d. 8
   e. 12

Answer 1

Answer -

Option (b) 4 is correct.

Explanation -

Mr.Brown deposit the check in his local bank in TX. The local bank would then deposit the check in Federal Reserve Bank of Dallas.This Federal Reserve Bank then send the check to the Federal Reserve Bank related with Braintown Maryland.,which then forward the check to Mr.Smith's local bank in Braintown Maryland.Mr.Smith's bank deduct the amount from his bank and then payment is sent back through the system until Mr Brown's account is credited.

In this way four banks are involved in this transaction.