3.3. Banking and Finance - b) Central Banking

Because a commercial bank can lend most of the money deposited with it to other borrowers, who in turn may lend it to another borrower, each sum of money deposited in a bank is multiplied several times. To ensure the safety of the banking system, central banks impose (1).... requirements, obliging commercial banks to deposit a certain amount of money with the central bank at zero (2)....

1) reserve 2) interest

Central banks in different countries also impose different "prudential ratios" on commercial banks. These are ratios between deposits and liquid (3).... that are considered sufficient to meet demands for (4)....

3) assets 4) cash

For example, a bank's capital ratio is between its capital and reserves on the one hand, and its assets on the other. The reserve asset ratio is between deposits with a (5).... of under two years, called "eligible liabilities," and reserve assets, which include cash and assets that are (6).... -i.e. quickly convertible into cash - such as reserve deposits held by the central bank, and securities such as treasury bills.

5) maturity 6) liquid