The average daily net transaction accounts of a local bank during the most recent reserve computation period was $923 million. The amount of average daily reserves held by this bank at the Fed during the reserve maintenance period was $39.05 million, and the average daily vault cash corresponding to the maintenance period was $13.51 million.

Required:

What was the required amount of average daily reserves the bank needed to hold at the Fed during the maintenance period (assuming the progressive rates listed below currently apply)

The required amount of the average daily reserves is $69.85 million

Explanation:

In this question, we are asked to calculate the required amount pf daily reserves needed to be held by the bank during the maintenance period.

We proceed as follows;

In accordance with the Federal Reserves regulation D of the securities act of 1993, banks in the US are required to hold the following target minimum against net transaction account;

Less than $12.4 million 0%

$12.4 million to $79.5 million 3%

Above $79.5 million 10%

We now calculate the reserve requirement as follows;

Reserve requirement = (0 * $12.4 million) + ($79.5 million - $12.4 million) (3%) + ($923 million - $79.5 million) (10%) = 0 + 2.013 + 84.35 = $83.36 million

To calculate the target daily average, we deduct the average daily balance of $13.51 million from the reserve requirement

Target daily average = Reserve requirement - average daily balance of vault cash

Target daily average = $83.36 million - $13.51 million = $69.85 million