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What Does Reserve Mean?

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The term 'reserve' is used in various perspectives and in business banking it includes the holdings of deposits of a bank in the state bank. In all the states, every bank has to keep a certain percentage of deposits in its account in central bank(known as required reserve ratio). These reserves are known as required reserves of a bank. If a bank has more reserves than the required reserves then the extra reserves are known as excess reserves. Therefore, reserves of a bank can be categorized into required reserves and excess reserves. In finance, reserves generally means the retained earnings of the company which comes under the stockholders' equity section.

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