DECA+ Business Management and Administration Practice Exam

What is a primary function of Federal Reserve Banks?

1. To provide direct loans to individuals

2. To regulate local property ownership

3. To protect the banking functions of local banks

4. To manage international currency transactions

The correct answer is: To protect the banking functions of local banks

A primary function of Federal Reserve Banks is to protect the banking functions of local banks. The Federal Reserve, often referred to as the Fed, serves as the central bank of the United States and plays a critical role in overseeing and regulating the banking system. By monitoring the safety and soundness of financial institutions, the Fed ensures that banks operate in a stable environment, which helps to instill public confidence in the banking system. This regulatory function includes providing guidance and standards to banks about acceptable practices, ensuring compliance with laws, and serving as a lender of last resort during times of financial distress. The Fed’s ability to manage monetary policy through tools such as interest rates and reserve requirements also directly impacts local banks, aiding them in maintaining liquidity and solvency. In contrast, providing direct loans to individuals is not a primary function of the Federal Reserve; rather, it is the role of local banks to provide loans to consumers and businesses. Regulating local property ownership is outside the scope of the Fed’s responsibilities, as property ownership involves state and local regulations. Managing international currency transactions is primarily handled by the U.S. Department of the Treasury and not the Federal Reserve Banks, which focus more on domestic monetary policy and stability in the U.S. banking system.