Question

Use the following to answer questions below: Assume the Trusty Bnaks`s balance sheet is as follows:

Assets		Liabilities and Net Worth
Reserves	35,000	Demand Deposits	260,000
Loans	200,000	Equity	50,000
Securities	75,000

(i)Refer to the above information to answer this question. If the bank`s target reserve ratio is 10%, which of the following is coorect?

(1)The bank`s reserves are in equilibrium (2)There are excess reserves of $9000

(3)The bank is under-reserved by $9000 (4)There are excess-reserves of $3500

I already know the answer. I just want to know the reason behind the answer and the working

(ii)Refer to the above information to answer this question. If the bank had $2500 in excess reserves what would be its target reserve ratio.

(iii)Refer to the above information to answer this question. Assuming a target reserve ratio of 8 percent how much excess reserves would this bank have after a cheque for $ 10,000 was cleared against it?

Answer 1