Question

Suppose that Third Fidelity Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%. Third Fidelity Reserves Required Reserves Excess Reserves (Dollars) (Dollars) (Dollars)

Answer 1

Answer:

$50

Explanation:

Please see attachment.

Answer 2

The value of excess reserve for Third Fidelity Bank is $50,000

What is excess reserve?

Excess reserves refer to the cash held by a bank or other financial institution above the reserve requirement that an authority sets.

We know that :

Asset = Total liabilities + Capital

Also,

Reserves = Outstanding loan = Deposit demand

Reserves + $130,000 = $200,000

Reserves = $70,000

Since

Reserve ratio = 10%

Out of total $200,000 deposits

Required reserves

= $200,000 * 10%

= $20,000

Therefore,

Excess reserves

= Total reserve - Required reserves

= $70,000 - $20,000

= $50,000

Hence, the value of Third Fidelity Bank for excess reserves is $50,000

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