Question
Help me to respond to those peoeple Person 1: In my opinion and based off of what we have learned this is how I would
Help me to respond to those peoeple
Person 1:
In my opinion and based off of what we have learned this is how I would rank them from most to least liquid when assessing the options provided. Gold coins would be first, second would be funds in checking account, third is funds in savings account, fourth would be 100 shares of Google stock, fifth is grocery store coupons and lastly are food stamps. Gold coins are the best example of money as they are most liquid among all and carry a set value. While on the other hand food Stamps are worst as they are least liquid due to factors such as limiting on what you can get, only certain places take them while others don't and food stamps cannot be represented as physical or virtual forms of the currency. Liquidity describes your ability to exchange an asset for cash. The easier it is to convert an asset into cash, the more liquid it is. And cash is generally considered the most liquid asset. Cash in a bank account or credit union account can be accessed quickly and easily, via a bank transfer or an ATM withdrawal. A checking account is a close second because it does not pose any restrictions on the number of withdrawals but while considering the saving account it also allows the account holder to withdraw cash as per their wish only posing certain restrictions on number of withdrawals. Also 100 shares of the Google stock is ranked where it is because it cannot be used at that particular moment, it will yield dividend only after a particular period of time. And finally the last to be covered is Grocery store coupons, which are placed where they are because they are restricted to that particular stores alone and cannot be used anywhere else. They also have an expiration date.
Person 2:
Banks in the United States create money during normal operations by accepting deposits and making loans, when a bank makes loan and approves it, it creates money. And according to "The Balance Money" the way the fractional reserve banking system works is the bank is required to hold a portion of customer deposits on hand, freeing it to lend out the rest of the money. It's designed to continually stimulate the supply of money that is available in the economy while also keeping enough cash on hand to complete any withdrawal requests. And currently, the required reserve ratio for banks in the US is 10%, which yes it did surprise me a little because I assumed that it would be at around 15%, but the fact it also got reduced and was once at 12% surprised me as well. However thinking about it a little more it does make sense given the fact that we are in a more digital age where everything is done digitally and people don't carry as much cash as they used to. And given the current trend and time I can see the reserve requirement going down as time goes on, of course time will tell but with more and more people resorting to digital payments and carrying very little if any cash on hand, I can see the 10% decreasing as time goes on.
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