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11 November, 13:18

Suppose the reserve requirement is currently 20%. Instructions: Enter your answers as a whole number. a. Assume Second Bank has deposits of $300 million. Calculate the required reserves for Second Bank. $ million b. At the end of the day, Second Bank has $65 million of reserves. Will Second Bank be a borrower or lender in the federal funds market? Second Bank will reserves of $ million in the federal funds market.

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  1. 11 November, 14:36
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    a.) required reserves = $60 million

    b.) Since second bank has reserve of $65 million but needed only $60 million so the bank can LEND reserves of $5 million in the federal funds market.

    Explanation:

    Step 1. Given information.

    Reserve requirement 20% Second bank has deposits of 300 million. At the end second bank has $65 million. Only need $60 million.

    Step 2. Formulas needed to solve the exercise.

    Required reserves = reserve requirement * deposits Second Bank

    Step 3. Calculation and Step 4. Solution.

    a.) required reserves = (20/100) x $300 million = $60 million

    b.) Since second bank has reserve of $65 million but needed only $60 million so the bank can LEND reserves of $5 million in the federal funds market.
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