Question

Fractional reserve banking takes its name from the fact that banks :

a.one a hold only a fraction of their reserves at the bankitself
b. reserve only a fraction of their activity for lending

c.lend only a fraction of their total reserves to customers
d. keep only a fraction of their total deposits on reserve

Answer 1

The answer to this question OPTION D: Keep only a fraction of their total deposits on reserve

By the very definition, Fractional reserve banking is involves retaining a portion or a fraction of customer deposits bank reserves and lending out the remainder as loans.

In past, goldsmiths kept the deposits in form of gold and silver. and issued an exchange note against the deposits. They observed the fact that people usually did not withdraw all their notes at once, hence, there was an opportunity to invest the coin reserves as loans.which generated income for the goldsmiths. Thus. fractional-reserve banking came into being.