Question

# 1. Suppose the ABC bank has excess reserves of \$5,000 and outstanding checkable deposits of \$100,000....

1.

Suppose the ABC bank has excess reserves of \$5,000 and outstanding checkable deposits of \$100,000. If the reserve requirement is 15 percent, what is the size of the bank's actual reserves?

\$5,000.

\$10,000.

\$15,000.

\$20,000.

2.

The reserves of a commercial bank consist of:

the amount of money market funds it holds.

deposits at the Federal Reserve Bank and vault cash.

government securities that the bank holds.

the bank's net worth.

1)

Total reserves = excess reserves + required reserves

Required reserves = (required reserves ratio)*Deposit = (15/100)100,000 = 15,000

Thus, Total reserves = 5000 + 15000 = 20000

Hence, the correct answer is (d) \$20,000

2)

Reserves of the commercial bank consists mainly of two form :

One money they hold as cash so that whenever some holder come to withdraw, they have that amount as cash.

Second they deposit that reserves to the central Bank of the country(i.e. Federal reserve bank)

Hence, the correct answer is (b) deposits at the Federal Reserve Bank and vault cash.

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