Assume that U.S. National Bank has no excess reserves and that the reserve ratio is 20 percent. If U.S. National borrows $5 million from a Federal Reserve Bank through a repo transaction, it can expand its loans by a maximum of
A) $1 million.
B) $0.
C) $25 million.
D) $5 million.

A repurchase (repo) transaction is a short term loan between entities that trade government securities. The agreement involves selling a government security on an overnight basis and then buying it back the next day. The price of the next day transaction is slightly higher than the original selling price, generating a profit for the original buyer.

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Assume that U.S. National Bank has no excess reserves and that the reserve ratio is 20 percent. If U.S. National borrows $5 million from a Federal Reserve Bank through a repo transaction, it can expand its loans by a maximum of A) $1 million. B) $0. C) $25 million. D) $5 million.

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Assume that U.S. National Bank has no excess reserves and that the reserve ratio is 20 percent. If U.S. National borrows $5 million from a Federal Reserve Bank through a repo transaction, it can expand its loans by a maximum of
A) $1 million.
B) $0.
C) $25 million.
D) $5 million.