assignment5b - To Eric Brockett BankZero Regional Manager...

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To: Eric Brockett, BankZero Regional Manager From: Jonathan Abramson, Assistant Manager Subject: Fed Announcement The Fed’s reserve requirements change is to increase the amount of cash the bank must hold either in our vault or at the Fed against our bank’s demand deposits. Currently the demand deposits are at $4.8 million requiring a cash reserve of $480,000. We currently have $500,000 in cash reserves so we are $20,000 over requirement. Should the Fed change the reserve from 10% to 15%, the cash reserve requirement would be $720,000. This means our cash reserves will be $220,000 short and will require us to add cash reserves. The making up of this shortfall can be done several ways including selling assets, borrowing from the Fed or other banks. In essence, this increase in reserves and increase in the discount rate will tighten the money supply. Doing so will lower the potential for multiple expansion. The increase of the discount rate brings another issue into question. Doing so makes borrowing
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This note was uploaded on 09/07/2011 for the course ECON ECO 201 taught by Professor Unknown during the Spring '09 term at New York Institute of Technology-Westbury.

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