The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:

A. keep track of whether money is flowing in or out of the bank.

B. buy bonds to increase the size of its reserve assets.

C. reduce the quantity of money and loans on the balance sheet.

D. borrow for the short term from the central bank.

The correct answer is D. borrow for the short term from the central bank.

Explanation:

The monetary reserve is a set of funds represented in currency, money or similar, saved as a forecast of eventual needs or for legal or contractual reasons (for contracts). There are many types of reserves represented in money or similar, however, in the economic issue, we can identify two main classes of reserves that are a fundamental part of the current economic and financial system.

Bank reserves (also called "bank reserve") : The Central Bank establishes a minimum amount of money that financial institutions must maintain permanently and cannot use for other activities; This guarantees that banks can return their savings to savers if they request them or money problems are presented to these institutions; that is, bank reserves (reserve requirements) are a percentage of the total deposits received by financial institutions, a percentage that must be kept in cash in their boxes or in their accounts at the Central Bank.

International monetary reserves (international reserves) : correspond to a certain amount of resources that countries possess and are used to fulfill, mainly, international commitments. These are mainly represented in foreign currencies and other assets such as gold. They can also be used by the Bank of the Republic to intervene in the exchange market and defend the exchange rate when necessary; that is, to prevent the Colombian peso from losing or gaining a lot of value compared to other foreign currencies.