Question

If a bank has required reserves of $27,000,000, excess reserves of $41,000,000, and deposits of $90,000,000 with a required reserve ratio of 30 percent, how much can the bank lend out?Answers:1. $117,000,002. $41,000,000 3. $27,000,0004. $8,100,000 5. $90,000,000

Answer 1

Answer:

2. $41,000,000

Explanation:

Excess reserve is a reserve over and above the amount of reserve prescribed by the monetary authority (i.e. Federal Reserve or Central Bank) to be held by banks to meet the day to day withdrawals of their customers. Banks generally do not want to keep excess reserve because it is non-interest bearing. where bank keep excess reserves, it may be to serve as safety buffer in time of loan loss.