3] The First Bank of Wahooton (10 marks) Table 1 The First Bank of Wahooton Asse
ID: 1146939 • Letter: 3
Question
3] The First Bank of Wahooton (10 marks) Table 1 The First Bank of Wahooton Assets Reserves $25,000 Loans 125,000 Liabilities Deposits $150,000 3.1 Refer to Table 1. If the bank faces a reserve requirement of 10 percent, then the bank a. is in a position to make a new loan of S$15,000. b. has fewer reserves than are required. c. has excess reserves of $10,000 d. None of the above is correct. 3.2 Refer to Table 1. If the bank faces a reserve requirement of 10 percent, then the bank a. is in a position to make a new loan of s10,000. b. has fewer reserves than are required. c. has excess reserves of $12,500. d. None of the above is correct 3.3.Refer to Table 1. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $50,000 into his account at the bank. IfExplanation / Answer
1.
Required reserves = 10% of $150,000
Required reserves = $15,000
Total reserves = $25,000
Thus, excess reserves = 25,000 - 15,000 = $10,000
Thus correct option: (c) has excess reserves of $10,000
2.
Correct option: (a)
Reason: New loans which can be made = excess reserves which are equal to $10,000
3.
Correct option: (d) none of the above
Reason: When new deposits = 150,000 + 50,000 = 2,00,000
Then required reserves = 10% of 200,000 = 20,000 and thus excess reserves = 25000 - 20000 = $5,000
4.
Correct option: (c) need $5000 more to meet reserve requirement
Reason: New required reserves = 20% of 150,000 = $30,000
Total reserves currently = 25,000
Total new reserve required to meet requirement = 30,000 - 25000 = $5,000
*Note: As per Chegg guidelines, only first 4 subparts are to be answered
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