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 ?
| 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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