Question

U.S. Treasury deposits at the Federal Reserve Banks are:A. A liability of the Federal Reserve Banks and the U.S. TreasuryB. An asset of the Federal Reserve Banks and the U.S. TreasuryC. A liability of the Federal Reserve Banks and an asset for the U.S. TreasuryD. An asset of the Federal Reserve Banks and a liability for the U.S. Treasury

Answer 1

Answer:

D. An asset of the Federal Reserve Banks and a liability for the U.S. Treasury

Explanation:

For all demand deposits that banks receive, a percentage share must be deposited with Federal Reseve. This is called compulsory withdrawal and serves to ensure the solubility of the financial system.

For banks, this represents an asset as it is an amount they will have to receive when the Fed authorizes it. For the US Treasury, this represents a liability, which is a future payment obligation, as these amounts will be returned to banks in the future.