A bank borrows $100,000 from the fed, leaving a $100,000 treasury bond on deposit with the fed to serve as collateral for the loan. the discount rate that applies to the loan is 4 percent and the fed is currently mandating a reserve ratio of 10 percent. how much of the $100,000 borrowed by the bank must it keep as required reserves? $100,000.$4,000.$0.$10,000.

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Business

Alexis Mason

4 May, 11:26

A bank borrows $100,000 from the fed, leaving a $100,000 treasury bond on deposit with the fed to serve as collateral for the loan. the discount rate that applies to the loan is 4 percent and the fed is currently mandating a reserve ratio of 10 percent. how much of the $100,000 borrowed by the bank must it keep as required reserves? $100,000.$4,000.$0.$10,000.

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Heaven Duffy · Answer 1

Answer: c). Required reserves = $0

Explanation: Reserve requirement is a Central Bank mandate imposed on all banks under which they must keep a certain fraction of their deposits as reserves with the Fed. These reserves are known as Required reserves.

Since, in this case the bank is borrowing $100,000 from the Fed it does not have to keep any reserves on this amount. Reserves are to kept only from deposits that the Bank has and not from loan borrowed by the bank.

Thus, the correct option will be required reserves is $0.