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%,

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 ?

Homework Answers

Answer #1
1
The reserve required is 10% of deposits of bank
Reserves required 150*10% $15 million
The reserve available is $15 million and reserve required is $15 million. Thus, bank has no excess reserve
2
The general financial position of bank is that most of its assets are financed through deposits and borrowed fund
Bank has deposits of $150 million and loans of bank are also $150 million and thus the duration gap of bank may reduce.
The assets of bank mainly comprises of loans and small part of securities.
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