A bank maintains an average clearing balance of $1,000,000 with the Federal Reserve.The Federal funds rate is currently 4.5 percent.What amount of credit will the bank earn over the reserve maintenance period that can be used to offset any fees charged by the Federal Reserve?
A)$17,500
B)$1,750
C)$45,000
D)$12,500
E)None of the options is correct

Question

Quizplus · Accepted Answer

The credit earned is calculated by multiplying the average balance by the Federal funds rate: $1,000,000 * 4.5% = $45,000 annually. To find the amount for the reserve maintenance period (typically 14 days), divide by 365 and multiply by 14: ($45,000 / 365) * 14 = $1,750.

A Bank Maintains an Average Clearing Balance of $1,000,000 with the Federal