Robba Bank has $500 million in deposits, is meeting its usual reserve ratio, and has no excess liquidity. It has $125 million in liquid assets. Robba Bank therefore has a reserve ratio of:

Question

Quizplus · Accepted Answer

Reserve ratio is the percentage of deposits that a bank is required to hold in reserve, which is the amount of liquid assets a bank must keep on hand to cover potential withdrawals. To calculate reserve ratio, divide required reserves by total deposits. Since Robba Bank has $125 million in liquid assets and $500 million in deposits, its required reserves are $125 million as well (assuming a reserve ratio of 100%). Thus, the reserve ratio is calculated as:

Required reserves/Total deposits = $125 million/$500 million = 25%

Therefore, the correct choice is C.

Robba Bank Has $500 Million in Deposits, Is Meeting Its