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

-Refer to the information above to answer this question.Assume that the target reserve ratio is 5 percent.Suppose that one of the bank's customers writes out a cheque for $4 which clears against this bank.As a result,what will the bank's excess reserves now be?

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.Assume that the target reserve ratio is 5 percent.Suppose that one of the bank's customers writes out a cheque for $4 which clears against this bank.As a result,what will the bank's excess reserves now be?

Quizplus · Accepted Answer

When a customer writes a cheque for $4 and it clears, the bank's reserves decrease by $4. With a target reserve ratio of 5%, the bank needs to hold 5% of its deposits as reserves. The $4 cheque reduces the bank's reserves directly, but the impact on excess reserves is calculated by considering the reserve requirement. If $4 represents an additional withdrawal, the bank would have originally planned to hold 5% of that as reserves, or $0.20. The reduction in actual reserves is $4, but because the bank would have only needed $0.20 of that to meet the reserve requirement for the $4, the excess reserves decrease by the full amount withdrawn minus what would have been required as reserves for that amount, which is $4 - $0.20 = $3.80. However, without the initial total reserves and deposits, we directly address the impact of the withdrawal. The direct answer seems to imply an understanding of how the withdrawal affects excess reserves beyond the simple calculation of 5% of the withdrawal amount, suggesting an effect that considers the overall change in reserve requirements and the bank's ability to lend. Given the options and the typical approach to such a question, the closest and most logical answer based on the information provided would be to consider the direct impact of the withdrawal on the bank's ability to meet its reserve requirements and lend, which is not fully captured by the choices given. Thus, the explanation provided does not match the options, indicating a need for additional information or clarification to accurately determine the bank's excess reserves after the cheque clears. The correct approach to determine the bank's excess reserves after the cheque clears would involve knowing the bank's total reserves and deposits before the cheque clears to accurately calculate the change in excess reserves.

The Following Is the Balance Sheet of the Regina Bank