The required reserve ratio is 10 percent, a bank has checkable deposits of $200 million and excess reserves of $100 million. Assuming the bank is meeting its reserve requirement, what amount is the bank holding in reserves?
Answer to the following question:
The required reserve ratio is 10%, that means out of the total deposit, the bank will keep 10% as reserve with them and rest will be lent out. So, the checkable deposit is $200 mIllion, thus, the bank will keep 10% of the $200 million with them as required reserve. 10% of $200 million is $20 million. And thus, the bank is holding $20 million in reserve. And the rest ($180 million) is the excess reserve.
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