The Vancouver Bank's balance statement is as follows: All figures are in billions. Refer to the above information and, assuming that desired reserve ratio is 10 percent, after a cheque for $20,000 is drawn and cleared against this bank, its excess reserve will be:
A)$3,000
B)$24,000
C)$9,000
D)$16,000

Question

The Vancouver Bank's balance statement is as follows: All figures are in billions.  Refer to the above information and, assuming that desired reserve ratio is 10 percent, after a cheque for $20,000 is drawn and cleared against this bank, its excess reserve will be:
A)$3,000 
B)$24,000 
C)$9,000 
D)$16,000

Quizplus · Accepted Answer

The current balance of the bank is:
Reserves: $10
Loans: $60
Securities: $30
Deposits: $90

According to the desired reserve ratio of 10%, the required reserves for this bank would be ($90 x 0.1) = $9.

Since the bank currently has reserves of $10, it has excess reserves of $1 billion ($10 - $9 = $1).

After the cheque for $20,000 is drawn and cleared against the bank, its deposits will decrease to $70 ($90 - $20).

The required reserves for the bank will now be ($70 x 0.1) = $7.

Since the bank currently has reserves of $10, it will still meet the required reserve ratio after the cheque is cleared.

Therefore, the excess reserve after the cheque is cleared will be ($10 - $7) = $3 billion.

Hence, the correct answer is C.

The Vancouver Bank's Balance Statement Is as Follows: All Figures