The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $355 million dollars in loans. Given this information you find that the reserve requirement must be
A)35/355.
B)45/355.
C)35/400.
D)45/400.

Question

Quizplus · Accepted Answer

The reserve requirement is the percentage of deposits that a bank is required to hold in reserve. We can find the reserve requirement by dividing the excess reserves by the total deposits:

Reserve Requirement = Excess Reserves / Total Deposits
Reserve Requirement = $10 million / $400 million
Reserve Requirement = 0.025 or 2.5%

Therefore, the reserve requirement is C) 35/400, which is equivalent to 0.025 or 2.5%.

The Manager of the Bank Where You Work Tells You