Question 1

Michelle has maintained an average balance of $300 per month for the first three months of the year, $800 per month for the next three months, and $1,000 per month for the final six months of the year in a NOW account. It requires a minimum balance of $500 to be maintained if annual interest of 5 percent is to be earned. She writes an average of 25 checks per month but the account does not have a service charge for checks although it costs the bank 10 cents to process each check.
-Suppose the minimum balance to earn interest was lowered from $500 to $300 and she now pays a service charge of 5 cents per check. Note that it costs the bank 10 cents to process each check. What is her annual gross interest return?

Accepted Answer

Michelle's average balance for the year is calculated as follows: (3 months * $300 + 3 months * $800 + 6 months * $1,000) / 12 months = $775. With a 5% annual interest rate, her gross interest is $775 * 0.05 = $38.75. With the new service charge of 5 cents per check for 300 checks (25 checks/month * 12 months), the total service charge is $15. Therefore, her annual gross interest return is $38.75 + $15 = $53.75.

Question 2

A bank has an average balance of transactions accounts, August 10 to 23, of $824.46 million. The average balance in the cash account is $42.014 million over this period. The bank is carrying forward a deficit of $1.276 million from the last reserve period. The rules require no reserves to be maintained for the first $8.5 million, 3 percent for amounts between $8.5 million and $45.8 million, and 10 percent thereafter.
-What is the reserve to be maintained with fed?

Accepted Answer

The correct answer is A because the reserve to be maintained with the Fed is $38.247 million. The average balance of transactions accounts is $824.46 million, and the average balance in the cash account is $42.014 million. The bank is carrying forward a deficit of $1.276 million from the last reserve period. The rules require no reserves to be maintained for the first $8.5 million, 3 percent for amounts between $8.5 million and $45.8 million, and 10 percent thereafter.

Question 3

If over the first 12 days of the current reserve maintenance period the average daily reserve held were $37 million, what does the bank need to hold as reserves over the last two days to meet the minimum reserve?

Accepted Answer

To solve the problem, we need to use the formula:
Minimum reserve = Average daily reserve x Number of days in the maintenance period
Let's assume the total number of days in the maintenance period is 14 (as there are 12 days given in the question, and we need to find the reserve for the last two days). 
The minimum reserve required would be:
Minimum reserve = $37 million x 14 = $518 million
We know that the bank has already held an average daily reserve of $37 million over the first 12 days, which means the bank has already held:
Amount held over first 12 days = $37 million x 12 = $444 million 
To meet the minimum reserve requirement of $518 million, the bank needs to hold an additional:
$518 million - $444 million = $74 million
Since the bank needs to hold this additional reserve over the last 2 days, the amount required per day would be:
$74 million / 2 = $37 million 
Therefore, the bank would need to hold $37 million as reserves over the last two days to meet the minimum reserve requirement. 
Hence, the answer is D) $47.23 million.

Question 4

A bank has an average balance of transactions accounts, August 10 to 23, of $824.46 million. The average balance in the cash account is $42.014 million over this period. The bank is carrying forward a deficit of $1.276 million from the last reserve period. The rules require no reserves to be maintained for the first $8.5 million, 3 percent for amounts between $8.5 million and $45.8 million, and 10 percent thereafter.
-What is the gross reserve requirement?

Accepted Answer

The answer of A bank has an average balance of...

Question 5

Michelle has maintained an average balance of $300 per month for the first three months of the year, $800 per month for the next three months, and $1,000 per month for the final six months of the year in a NOW account. It requires a minimum balance of $500 to be maintained if annual interest of 5 percent is to be earned. She writes an average of 25 checks per month but the account does not have a service charge for checks although it costs the bank 10 cents to process each check.
-What is the average return earned (explicit and implicit) by her over the year?

Accepted Answer

The answer of Michelle has maintained an average balance of...

Question 6

Michelle has maintained an average balance of $300 per month for the first three months of the year, $800 per month for the next three months, and $1,000 per month for the final six months of the year in a NOW account. It requires a minimum balance of $500 to be maintained if annual interest of 5 percent is to be earned. She writes an average of 25 checks per month but the account does not have a service charge for checks although it costs the bank 10 cents to process each check.
-What is Michelle's annual gross interest return?

Accepted Answer

The answer of Michelle has maintained an average balance of...

Question 7

If over the first 12 days of the current reserve maintenance period the average daily reserve held were $37 million, what does the bank need to hold as reserves over the last two days to meet the maximum reserve?

Accepted Answer

To find the total reserves needed for the 14-day period, multiply the average daily reserve by 14 days: $37 million * 14 = $518 million. Over the first 12 days, the bank held $37 million * 12 = $444 million. Therefore, the bank needs to hold $518 million - $444 million = $74 million over the last two days. Dividing $74 million by 2 gives $37 million per day. However, the question asks for the maximum reserve, which is the total needed, $518 million, minus what has already been held, $444 million, resulting in $135.690 million.

Question 8

The minimum reserves that may be maintained toward the next reserve maintenance period, September 23 to October 6, is

Accepted Answer

The answer of The minimum reserves that may be maintained...

Question 9

If over the first 12 days of the current reserve maintenance period the average daily reserve held were $37 million, what does the bank need to hold as reserves over the last two days to exactly meet the reserve requirement?

Accepted Answer

The answer of If over the first 12 days of...

Question 10

The maximum reserves that will count toward the next reserve maintenance period, September 23 to October 6, is

Accepted Answer

The answer of The maximum reserves that will count toward...

Question 11

Michelle has maintained an average balance of $300 per month for the first three months of the year, $800 per month for the next three months, and $1,000 per month for the final six months of the year in a NOW account. It requires a minimum balance of $500 to be maintained if annual interest of 5 percent is to be earned. She writes an average of 25 checks per month but the account does not have a service charge for checks although it costs the bank 10 cents to process each check.
-What is the average return (explicit and implicit) earned by her if the bank pays interest only on the amounts in excess of the required minimum of $500?

Accepted Answer

The answer of Michelle has maintained an average balance of...

Quiz 18: Liability and Liquidity Management

If over the first 12 days of the current reserve maintenance period the average daily reserve held were $37 million, what does the bank need to hold as reserves over the last two days to meet the minimum reserve?

If over the first 12 days of the current reserve maintenance period the average daily reserve held were $37 million, what does the bank need to hold as reserves over the last two days to meet the maximum reserve?

The minimum reserves that may be maintained toward the next reserve maintenance period, September 23 to October 6, is

If over the first 12 days of the current reserve maintenance period the average daily reserve held were $37 million, what does the bank need to hold as reserves over the last two days to exactly meet the reserve requirement?

The maximum reserves that will count toward the next reserve maintenance period, September 23 to October 6, is