The following is the balance sheet of the Regina Bank.(All figures are in $millions)

-Refer to the information above to answer this question.If this bank has excess reserves of $4 then what must be the target reserve ratio?

Question

The following is the balance sheet of the Regina Bank.(All figures are in $millions)
 
-Refer to the information above to answer this question.If this bank has excess reserves of $4 then what must be the target reserve ratio?

Quizplus · Accepted Answer

Excess reserves = Actual reserves - Required reserves
Let x be the target reserve ratio:
Excess reserves = Total deposits x (Actual reserve ratio - Target reserve ratio)
$4 = $550 x (0.12 - x)
$4 = $66 - $550x
$550x = $62
x = 0.1127 or 11.27%
So, the target reserve ratio must be 11.27%, which is closest to option C) 7%.

The Following Is the Balance Sheet of the Regina Bank