XYZ Bank currently has $900 million in transaction deposits on its balance sheet. The current reserve requirement is 3 percent, but the Federal Reserve is planning on increasing it to 5 percent. XYZ Bank converts all excess reserves to loans, and the cash to deposit ratio is 4%.
1. XYZ's reserve deposit with the Fed after the reserve requirement change is _____million dollars.
a) 27
b) 55
c) 35
d) none
2. What will be the XYZ's loan balance after the change in the reserve requirement takes effect?
a) 513 million
b) 1045 million
c) 695 million
d) none
| Answer 1 | |||||||||
| XYZ's reserve deposit with the Fed after the reserve requirement change = Deposits x Reserve requirement % = $900 million x 5% | |||||||||
| XYZ's reserve deposit with the Fed after the reserve requirement change = $45 million | |||||||||
| The answer is Option d i.e.none. | |||||||||
| Answer 2 | |||||||||
| XYZ's loan balance after the change in the reserve requirement takes effect = Deposits - Reserve deposit with Fed - Cash | |||||||||
| XYZ's loan balance after the change in the reserve requirement takes effect = $900 million - $45 million - [$900 million x 4%] | |||||||||
| XYZ's loan balance after the change in the reserve requirement takes effect = $819 million | |||||||||
| The answer is Option d i.e.none. | |||||||||
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