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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

A bank currently has $100 million in checkable deposits, $4 million in reserves, and $8 million in securities. If the required reserve ratio is 10 percent, is the bank meeting its legal reserve requirements? Explain.

To determine

Identify the legal reserve requirement.

Explanation

The required reserves can be calculated using the formula given below:

 Required reserves =r× Checkable deposits        (1)

Here, r is the required reserve ratio.

Since r is 10% and checkable deposit is $100 million, the required reserve can be calculated using Eqution-1 as follows:

 $10million =0.09× Checkable deposits=0

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