Suppose the reserve requirement is currently 20%. Instructions: Enter your answers as a whole number. a. Assume Second Bank has deposits of $300 million. Calculate the required reserves for Second Bank. $ million b. At the end of the day, Second Bank has $65 million of reserves. Will Second Bank be a borrower or lender in the federal funds market? Second Bank will reserves of $ million in the federal funds market.

Question

Business

Julie Boyd

17 February, 19:36

Suppose the reserve requirement is currently 20%. Instructions: Enter your answers as a whole number. a. Assume Second Bank has deposits of $300 million. Calculate the required reserves for Second Bank. $ million b. At the end of the day, Second Bank has $65 million of reserves. Will Second Bank be a borrower or lender in the federal funds market? Second Bank will reserves of $ million in the federal funds market.

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Answers (1)

Know the Answer?

Kaylyn · Answer 1

a.) required reserves = $60 million

b.) Since second bank has reserve of $65 million but needed only $60 million so the bank can LEND reserves of $5 million in the federal funds market.

Explanation:

Step 1. Given information.

Reserve requirement 20% Second bank has deposits of 300 million. At the end second bank has $65 million. Only need $60 million.

Step 2. Formulas needed to solve the exercise.

Required reserves = reserve requirement * deposits Second Bank

Step 3. Calculation and Step 4. Solution.

a.) required reserves = (20/100) x $300 million = $60 million

b.) Since second bank has reserve of $65 million but needed only $60 million so the bank can LEND reserves of $5 million in the federal funds market.