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20 February, 14:31

If a bank has $10 million on deposit, and the Federal Reserve specifies a reserve requirement of 30 percent, then how much money would the bank need to keep on hand at all times?

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  1. 20 February, 14:56
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    The amount of money which the bank need to hand all times is $7 million

    Explanation:

    The amount of money which the bank need to hand all times is computed as:

    First computing the amount of reserve as:

    Reserve amount = Deposit amount * Reserve requirement percent

    where

    Deposit amount is $10 million

    Reserve requirement percent is 30%

    Putting the values above:

    Reserve amount = $10 million * 30%

    Reserve amount = $3 million

    Now, computing the amount of money which bank need to hand:

    Amount of money = Deposit amount - Reserve amount

    Amount of money = $10 million - $3 million

    Amount of money = $7 million
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