Question

with a required reserve ratio of 20 percent, $200,000 of checkable deposits, and it holds $80,000 in total reserves, then the maximum deposit outflow a bank can sustain without altering its balance sheet is a) $30,000. b) $40,000. c) $50,000. d) $25,000.

Answer 1

The maximum deposit outflow a bank can sustain without altering its balance sheet is $50,000

What is a deposit?

In general, a deposit is just funds that is kept in a financial institution. When a percentage of the funds are used as security or collateral for the delivery of goods or services, this is one description of a deposit. One type of deposit entails the money being transferred to a third party for storage, such as a bank.

The equation for the maximum outflow of the deposit without altering its balance sheet is:

(200,000 - Maximum deposit outflow) * (20%) = 80,000 - Maximum deposit outflow

40,000 - 0.2maximum deposit outflow = 80,000 - maximum deposit outflow

0.8 maximum deposit outflow = 40,000

Maximum deposit outflow = 50,000

Now, (200,000-50,000) = 150,000 in liabilities

80,000 - 50,000 = 30,000

Reserve ratio: 30,000/150,000 *100 = 20%

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