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26 June, 16:54

A bank's assets consist of $1,000,000 in total reserves, $2,100,000 in loans, and a building worth $1,200,000. Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital. Refer to Exhibit 17-2. If the bank is required to keep reserves equal to one-third of deposits, what is the level of the bank's excess reserves? How much could it loan out as a result?

a. $700,000; $2,100,000

b. $300,000; $900,000

c. zero; zero

d. $300,000; $300,000

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Answers (1)
  1. 26 June, 18:53
    0
    Option (c) zero; zero

    Explanation:

    Data provided in the question:

    Bank's assets in total reserve = $1,000,000

    Loans = $2,100,000

    Building worth = $1,200,000

    Demand deposits = $3,000,000

    Capital = $1,300,000

    Required reserves = one-third of deposits

    Now,

    Required reserves = one-third of $3,000,000

    or

    Required reserves = $3,000,000 : 3

    = $1,000,000

    Thus, excess reserves = Total reserve - Required reserves

    = $1,000,000 - $1,000,000

    = $0 i. e zero

    also,

    Amount bank could loan = Amount of excess reserve

    = zero

    Hence,

    Option (c) zero; zero
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