Exhibit 1 Balance Sheet of First National Bank Total reserves Loans Total Assets

Question

Exhibit 1 Balance Sheet of First National Bank Total reserves Loans Total Assets Liabilities $500 $500 $1,000Total Demand deposits $1,000 $1,000 1. Refer to Exhibit 1. If excess reserves at First National Bank are $250, then which of the a. 10 percent. b. 20 percent. c 25 percent. d. 30 percent. e. 50 percent. 2. Refer to Exhibit 1. If First National Bank's customers write checks for $200 and the required reserve ratio is 20 percent, then its required reserves are: a. $0 b. $40 c. $80 d. $160. e. $200.

Explanation / Answer

Answer 1. c) 25 per cent

Reserve requirement is the per centage of reserve required out of total deposits of a bank.
Total reserves = $500. Excess reserves =$250. Deposits = $1000
Therefore required reserves = $250/$1000 *100

Answer 2. d) $160

Current deposit =$1000 after writing cheque of $200, deposits remaining = $800. Required reserve =20%
REserve required = $800 * 20% = $160

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