Suppose that from a new checkable deposit, First National Bank holds two million dollarsin vault cash, one million dollars in required reserves, and faces a required reserve ratio of tenpercent. Given this information, we can say First National Bank has ________ million dollarsin excess reserves.A) oneB) twoC) nineD) ten
Question
Suppose that from a new checkable deposit, First National Bank holds two million dollarsin vault cash, one million dollars in required reserves, and faces a required reserve ratio of tenpercent. Given this information, we can say First National Bank has ________ million dollarsin excess reserves.A) oneB) twoC) nineD) ten
Solution 1
To answer this question, we first need to understand what excess reserves are. Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls.
In this case, the First National Bank has a total of 2 million in vault cash + $1 million in required reserves).
The required reserve ratio is 10 percent. This means that the bank is required to hold 10% of its deposits as reserves.
However, the question does not provide information on the total amount of the bank's deposits, which we would need to calculate the required reserves and then determine the excess reserves.
Therefore, based on the information given in the question, we cannot definitively say how much the First National Bank has in excess reserves.
Solution 2
La respuesta es C) nueve.
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