Question

A bank has the following assets: Reserves of $15 million; Loans of $150 million; and Securities...

A bank has the following assets: Reserves of $15 million; Loans of $150 million; and
Securities of $50 million. Their liabilities include Deposits of $150 million; Borrowed funds of
$35 million and Bank Capital of $30 million. If the required reserve rate is 10 percent, answer the following:


a. What is the amount of excess reserves the bank is currently holding?
b. What are the options available to the bank if customers decide to withdraw $10 million in deposits?

Homework Answers

Answer #1

1) Excess reserves = $0

Working: Deposits = $150 million; Required reserves = 10% * $150 million = $15 million

Actual reserves = $15 million

Thus excess reserves = Actual reserves - Required reserves = $15 million - $15 million = $0 million

2) Assuming that customer’s makes a decision to withdraw $10 million from the bank the bank can fulfill the requirements either through the asset adjustment or liability adjustment. From the asset adjustment side the bank could make the adjustment by selling the securities for cash or not renewing some loans. Because the bank is interested in on keeping the good relations with the customer relations thus tends to opt for the selling of securities. From the liability adjustment side, the bank would probably opt for increasing the deposits, borrowing additional funds or providing an attractive rate of interest on long-term CDs.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Question 1. A bank has the following assets: Reserves of $15 million; Loans of $150 million;...
Question 1. A bank has the following assets: Reserves of $15 million; Loans of $150 million; and Securities of $50 million. Their liabilities include Deposits of $150 million; Borrowed funds of $35 million and Bank Capital of $30 million. If the required reserve rate is 10 percent, answer the following: What is the amount of excess reserves the bank is currently holding? In order to fulfill the required reserves, what are the options available to the bank if customers decide...
A bank has the following assets: Reserves of $15 million; Loans of $150 million; and Securities...
A bank has the following assets: Reserves of $15 million; Loans of $150 million; and Securities of $50 million. Their liabilities include: Deposits of $150 million; Borrowed funds of $35 million; and Bank capital of $30 million. If the required reserve rate is 10%, what is the amount of excess reserves the bank is currently holding? How do you describe the general financial position of this bank ?
A bank has the following assets: Reserves of $15 million; Loans of $150 million; and Securities...
A bank has the following assets: Reserves of $15 million; Loans of $150 million; and Securities of $50 million. Their liabilities include: Deposits of $150 million; Borrowed funds of $35 million; and Bank capital of $30 million. If the required reserve rate is 10%, 1) what is the amount of excess reserves the bank is currently holding? 2) How do you describe the general financial position of this bank ?
A bank has the following assets: Assets liabilities Reserves $15 million Deposit $150 million Loans $150...
A bank has the following assets: Assets liabilities Reserves $15 million Deposit $150 million Loans $150 million Borrowed funds $35 million Securities $50 million Bank capital $30 million If the required reserve rate is 10% and excess reserve is 0. How do you describe the general financial position of this bank ?
(3.) Consider the following bank balance sheet: Assets (in millions) Liabilities (in millions) Reserves $50 Demand...
(3.) Consider the following bank balance sheet: Assets (in millions) Liabilities (in millions) Reserves $50 Demand Deposits $200 Securities $50 Equity (in millions) Loans $150 Equity Capital $50 (a.) Suppose that this bank is subject to a 10.00% required reserve ratio. Is this bank holding any excess reserves? If so, how much? (b.) Suppose that this bank experiences a $35 million deposit out?ow. By how much is this bank short of its reserve requirements?
The bank you own has the following balance sheet: Assets Liabilities Reserves $150 million Deposits $1000...
The bank you own has the following balance sheet: Assets Liabilities Reserves $150 million Deposits $1000 million Loan $1050 million Bank Capital $ 200 million If the bank suffers a deposit outflow of $100 million with a required reserve ratio on deposits of 10%, what actions you must take to keep your bank from failing?
Your bank has the following balance sheet: Assets Liabilities Reserves $50 millions.   Checkable deposits $200 million....
Your bank has the following balance sheet: Assets Liabilities Reserves $50 millions.   Checkable deposits $200 million. Securities $50 million    Loans $150 Bank If the required reserve ratio is 20%, what will be the size of this bank (as measured by its total assets or liabilities) after $20 million deposit outflow if it just meets reserve deficiency by borrowing money? $206 million. $180 million $210 million. $188 million.
Your bank has the following balance sheet: Assets                                  
Your bank has the following balance sheet: Assets                                           Liabilities                                           Reserves               $50 million     Checkable deposits     $200 million Securities             50 million       Loans                    150 million     Bank capital                50 million       If the required reserve ratio is 10%, what actions should the bank manager take if there is an unexpected deposit outflow of $50 million?
TABLE A: ASSETS LIABILITIES Required Reserves $288,000 Demand Deposits $1,800,000 Excess 12,000 Loans and Securities $1,500,000...
TABLE A: ASSETS LIABILITIES Required Reserves $288,000 Demand Deposits $1,800,000 Excess 12,000 Loans and Securities $1,500,000 Total Assets $1,800,000 Total Liabilities $1,800,000 31. The money multiplier for the bank in TABLE A is A) 5. B) 10 C) 8.33 D) 6.25 32. If someone withdraws $12,000 from TABLE A, the bank will: A) have zero excess reserves. B) have excess reserves of $1,920. C) have a reserve deficiency of $1,000 D) have excess reserves of $1000
1. You are given this account for a bank Assets Liabilities Reserves $450 Deposits $3000 Loans...
1. You are given this account for a bank Assets Liabilities Reserves $450 Deposits $3000 Loans $2550 The required reserve ratio is 10% a. How much is the bank required to hold as reserves given its deposits of $3000? b. How much are its excess reserves? c. By how much can the bank increase its loans? d. Suppose a depositor comes to the bank and withdraws $200 in cash. Show the bank’s new balance sheet, assuming the bank obtains the...