PROBLEMS 1. A new bank has vault cash of $1 million and $5 million in deposits h

Question

PROBLEMS
1. A new bank has vault cash of $1 million and $5 million in deposits
held at its Federal Reserve District Bank.
a. If the required reserves ratio is 8 percent, what dollar amount
of deposits can the bank have?
b. If the bank holds $65 million in deposits and currently holds
bank reserves such that excess reserves are zero, what
required reserves ratio is implied?
2. Assume a bank has $5 million in deposits and $1 million in vault
cash. If the bank holds $1 million in excess reserves and the required
reserves ratio is 8 percent, what level of deposits are being held?

Explanation / Answer

Deposits at Federal Reserve District Bank = $5 million

Reserve requirement = 8%

a) Thus dollar deposit that t6he bank can have ($5 million/8%) = $62.5 million

Currently the bank holds $65 million in deposits

b) Thus, implied required reserves ratio ($5 million /$65 million x 100) = 7.69%

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