Why Should Banks Abide By The Reserve Requirement? Essay

1850 WordsMay 11, 20168 Pages
Introduction 1.1 Research Problem and Questions Central Banks use the Reserve requirement as a tool to control the money supply in their countries. The project will try to answer these questions: Question 1: What we mean by the reserve requirement? Question 2: Why should banks abide by the reserve requirement? The biggest problem that the research will talk about is that why the Central Banks of many countries put different reserve requirements in their banking systems. 1.2 Research Objective The project will track the history of three different countries during the past 30 years to come up with the reasons behind the reserve requirement strategies adopted by the central banks of these three distinct countries. 1.3 Research Structure The study will be divided into three chapters. Each chapter will talk about one of the countries and the history of the reserving requirement in that country in the last 30 years. The three countries that will be discussed in our project are Egypt, USA, and China. Chapter 1 Changes in Reserve Requirements in Egypt in the past 30 years In the beginning, we should now what is meant by reserve requirement. The reserve requirement is defined as the amount of money that the banks should deposit in the central bank without taking any interests on it. These sums of money shall be filed in the central bank so it can mitigate against any future financial risks for the bank or in the case of bankruptcy, as well as it acts as collateral in

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