Asked by Alyamamah Saleh on Jul 25, 2024
Verified
If First Interstate Bankcorp has demand deposits of $8 billion,actual reserves of $1.4 billion,and the reserve requirement is 15%,the bank's excess reserves are
A) $100 million.
B) $200 million.
C) $400 million.
D) $800 million.
E) 1 billion.
Excess Reserves
The capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors, or internal controls.
Actual Reserves
The total amount of funds that a bank has on deposit at the Federal Reserve, plus any cash physically held by the bank.
Reserve Requirement
A regulation set by central banks requiring commercial banks to hold a certain proportion of their deposits as reserves.
- Acquire knowledge about the parts and calculations involved in bank reserves, covering total, obligatory, and additional reserves.
Verified Answer
AK
Amisha KumarJul 30, 2024
Final Answer :
B
Explanation :
The reserve requirement is 15%, which means that the bank is required to hold 15% of its demand deposits as reserves. This would be $8 billion x 0.15 = $1.2 billion. However, the bank has actual reserves of $1.4 billion, so its excess reserves would be $1.4 billion - $1.2 billion = $200 million. Therefore, the correct answer is choice B.
Learning Objectives
- Acquire knowledge about the parts and calculations involved in bank reserves, covering total, obligatory, and additional reserves.