Asked by Candace Stubblefield on May 02, 2024
Verified
The table below shows the balance sheet of Eubank.If Eubank is holding no excess reserves,its required reserve must be:
?Table 14.1
?
EUBANK
?
Assets Liabilities and Net Worth Deposits at the Fed $40,000 Checkable deposits $500,000 Cash $10,000 Net Worth $20,000 Loans $300,000 Securities $150,000 Fed Stock $20,000\begin{array} { | l | r | r | r | } \hline \text { Assets } & { \text { Liabilities and Net Worth } } & \\\hline & & & \\\hline \text { Deposits at the Fed } & \$ 40,000 & \text { Checkable deposits } & \$ 500,000 \\\hline \text { Cash } & \$ 10,000 & \text { Net Worth } & \$ 20,000 \\\hline \text { Loans } & \$ 300,000 & & \\\hline \text { Securities } & \$ 150,000 & & \\\hline \text { Fed Stock } & \$ 20,000 & & \\\hline\end{array} Assets Deposits at the Fed Cash Loans Securities Fed Stock Liabilities and Net Worth $40,000$10,000$300,000$150,000$20,000 Checkable deposits Net Worth $500,000$20,000
A) 5 percent
B) 4 percent
C) 10 percent
D) 20 percent
E) 2 percent
Required Reserve
The minimum amount of funds that a bank must hold in reserve against deposits made by customers, as mandated by central banking authorities.
Excess Reserves
The amount of reserves that a bank holds beyond the required minimum, which can potentially be lent out to create new money.
- Elucidate the principle of reserve requisites and their impact on the lending capacities of banks.
Verified Answer
MC
matthew crossMay 08, 2024
Final Answer :
C
Explanation :
The required reserve is calculated based on the percentage of checkable deposits that a bank must hold in reserve. Given that Eubank is holding no excess reserves and its total reserves (deposits at the Fed + cash) amount to $50,000 ($40,000 + $10,000), and the checkable deposits are $500,000, the required reserve ratio is $50,000 / $500,000 = 0.1 or 10 percent.
Learning Objectives
- Elucidate the principle of reserve requisites and their impact on the lending capacities of banks.