Suppose that National Bank of Guerneville has $33 million in checkable deposits, Commonwealth Bank has $41 million in checkable deposits, and the required reserve ratio for checkable deposits is 10%. If National Bank of Guerneville has $4 million in reserves and Commonwealth has $5 million in reserves, how much in excess reserves does each bank have?

Question

Business

Cyrus Carpenter

4 December, 06:39

Suppose that National Bank of Guerneville has $33 million in checkable deposits, Commonwealth Bank has $41 million in checkable deposits, and the required reserve ratio for checkable deposits is 10%. If National Bank of Guerneville has $4 million in reserves and Commonwealth has $5 million in reserves, how much in excess reserves does each bank have?

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Answers (1)

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Carmelo Ray · Answer 1

National Bank of Guerneville : $4mn - $3.3mn = $0.7 million.

Commonwealth Bank : $5mn - $4.1mn = $0.9 million.

Explanation:

Since the reserve ration for the checkable deposits is 10%, that means the National bank of Guerneville has to maintain $3.3 million in the reserves, while it maintains $4 million, hence excess of $0.7 million.

Secondly, Commonwealth bank has to maintain $4.1 million in the reserves, while it maintains $5 million, hence excess of $0.9 million.

Hope this clear things up.

Good Luck.