Question

Suppose that the reserve ratio is 6% and applies only to checkable deposits. A bank has noncheckable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess reserves of this bank

Answer 1

Answer:

$2 million

Explanation:

Reserves is the total amount of a bank's deposit that is not given out as loans

Reserves includes :

1. Required reserves is the percentage of deposits required of banks to keep as reserves by the central bank

Required reserves = reserve requirement x deposits

0.06 x 100 million = 6 million  

2. Excess reserves is the difference between reserves and required reserves. It is the amount of reserves held in excess of required reserves

Excess reserves = reserves - required reserves

8 million - 6 million = 2 million