Question

5. The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank....

5. The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank. The required reserves ratio is 12 percent.

a. If the bank has $600 million in deposits, what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio?

b. If the bank holds $10 million in vault cash, determine the required reserves ratio that would be needed for the bank to avoid a reserves deficit.

c. If the Friendly National Bank experiences a required reserves deficit, what actions can it take to be in compliance with the existing required reserves ratio?

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Answer #1

Solution:-

A. To Calculate Amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio-

Required Reserve = Deposits * Required Reserve Ratio

Required Reserve = $600 Million * 0.12

Required Reserve = $72 Million

Vault Cash = Required Reserve - Reserves at Federal Reserves Bank

Vault Cash = $72 Million - $50 Million

Vault Cash = $22 Million

B. To Determine the required reserves ratio that would be needed for the bank to avoid a reserves deficit-

Required Reserve Ratio =

Required Reserve Ratio =

Required Reserve Ratio = 10%

C. The Friendly National Bank can borrow its deficit required reserve from another bank that have excess Reserve.

If you have any query related to question then feel free to ask me in a comment.Thanks.

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