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2 May, 08:30

First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault and $5 million in government bonds. Consider the information for First National Bank. If the reserve ratio is 20%, what are the excess reserves available for the bank to lend

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  1. 2 May, 10:37
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    Answer: $64 million

    Explanation:

    Deposit = $80 million

    Reserved Required Ration = 20% (0.20)

    Firstly, we have to calculate Reserve Requirements before we can calculate the excess reserve.

    Reserve Requirements = (Deposit x Reserve Requirements Ratio).

    Reserve Requirements = ($80million x 0.2)

    Reserve Requirements = $16million

    Therefore,

    Eccess Reserve = (Deposit - Reserve Requirements)

    Eccess Reserve = ($80million - $16million)

    Eccess Reserve = $64million

    The amount of Excess Reserve which can be loaned out is $64million
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Home » Business » First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault and $5 million in government bonds. Consider the information for First National Bank.
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