Question

1a) Suppose a bank has excess reserves (ER) of $30,000 and checking deposit liabilities (D) of $150,000.  If the reserve ratio (rr) is 12.5%, what is this bank’s actual reserves (R)?

Actual Reserves (R) = _________________________.

1b) This problem and separate from (not related to) problem #5a above.  Suppose that a bank has ​$80m in checkable​ deposits (D), reserves (R) of ​$15m and is subject to a reserve requirement (rr) of​ 10%. Now assume that the bank suffers a ​$12m deposit outflow. If the bank chooses to borrow from the Fed to meet its reserve​ requirement, then how much would the bank would need to borrow?  Round your answer to the 2^nd decimal​ place.

Borrowings from the Fed = __________________.

Answer 1

1 a)  

Reserve ratio is 12.5%

on a total deposit size of 150,000

Total required reserve will be 12.5% of 150,000 = 18,750

Excess reserves are of 30,000

=> total reserve(or actual reserve) = 18,750+30,000 = 48,750

1b)

Deposits = 80,000,000

Reserves = 15,000,000

Cash outfolw = 12,000,000

Deposits left = 68,000,000 (80 million - 12 million of cash outflow)

Reserves left = 3,000,000 (15 million - 12 million of cash outflow)

reserve requirenment = 10% of deposits

or 6,800,000

Hence to meet the minimum reserve requirnment bank would need to borrow a sum of 3,80,000