Question

Springfield Bank holds $280 million in total deposits and $40.7 million in total reserves. With a required reserve ratio of 11.5 percent, how much in excess reserves is Springfield Bank holding?
a) $239.3 million
b) $247.8 million
c) $36 million
d) $32.2 million
e) $8.5 million

Answer 1

Answer:

e) $8.5 million

Explanation:

The computation of the excess reserve is shown below:

We know that

Excess reserve = total reserve - required reserve

where

Required reserve is

= Total deposits × required reserve ratio

= $280 × 11.5%

= $32.20

So, the excess reserve is

= $40.7 - $32.20

= $8.5 million