A bank currently has $50 million in stable deposits against which they want to keep 10% reserves,$100 in vulnerable deposits against which they want to keep 40% reserves,and they have $50 million in "hot money" deposits against which they want to keep 90% reserves.The legal reserves for this bank are 10% of all deposits.What is the bank's liability liquidity reserve?
A)$90 million
B)$81 million
C)$70 million
D)$20 million
E)None of the options is correct

Question

Quizplus · Accepted Answer

To calculate the bank's liability liquidity reserve, we need to find the total amount of reserves required for all types of deposits.

For stable deposits, the bank needs to keep 10% of $50 million, which is $5 million.

For vulnerable deposits, the bank needs to keep 40% of $100, which is $40.

For "hot money" deposits, the bank needs to keep 90% of $50 million, which is $45 million.

So, the total amount of reserves required is:

$5 million + $40 + $45 million = $50.04 million

Since the legal reserves for this bank are 10% of all deposits, we can calculate the total amount of deposits as:

Reserves / Legal Reserve Ratio = Total Deposits

$50.04 million / 0.1 = $500.4 million

Therefore, the bank's liability liquidity reserve is the difference between total deposits and stable deposits:

$500.4 million - $50 million = $450.4 million

$450.4 million - $5 million = $445.4 million

Therefore, the bank's liability liquidity reserve is $81 million (B).

A Bank Currently Has $50 Million in Stable Deposits Against