6 million08 1 million 75 million 1 million 76 million P4 A bank has 10 million

# 6 million08 1 million 75 million 1 million 76 million

This preview shows page 2 - 3 out of 3 pages.

reserves and the required reserves ratio is 8 percent, what level of deposits are being held? (\$6 million/.08) + \$1 million = \$75 million + \$1 million = \$76 million P4. A bank has \$10 million in vault cash and \$110 million in deposits. If total bank reserves were \$15 million with \$2 million considered to be excess reserves, what required reserves ratio is implied? \$15 million - \$2 million = \$13 million \$13 million/\$110 million = 11.8 required reserves ratio P5. The Friendly National Bank holds \$50 million in reserves at its Federal Reserve District Bank. The required reserves ratio is 12 percent. a. If the bank has \$600 million in deposits, what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio?
\$600 million x .12 = \$72 million required reserves \$72 million - \$50 million reserves at Federal Reserve Bank= \$22 million vault cash b. If the bank holds \$10 million in vault cash, determine the required reserves ratio that would be needed for the bank to avoid a reserves deficit. (\$10 million + \$50 million)/\$600 million \$60 million/\$600million = 10 percent c. If the Friendly National Bank experiences a required reserves deficit, what actions can it take to be in compliance with the existing required reserves ratio? The Friendly National Bank could borrow the amount of its required reserves deficit from another bank that has excess reserves. Alternatively, the Bank might tighten credit to reduce deposits.

#### You've reached the end of your free preview.

Want to read all 3 pages?

• Spring '13
• MEYER
• Balance Sheet, Federal Reserve System, reserves ratio, Friendly National Bank