Question

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?

Answer 1

If the bank's reserves is $1000000, checking deposits be $3000000 and the required reserve ratio be 20% then the bank has excess reserves of $400000.

Given that bank's reserves is $1000000, checking deposits be $3000000 and the required reserve ratio be 20%.

Required reserve ratio is basically a percentage of deposits to be kept by the bank with them.

We are required to find the find the bank's reserve position.

Bank's reserves=$1000000.

Checking deposits=$3000000

Required reserve ratio=20%

Reserves required according to the checking deposits=3000000*20%

=$600000

Actual reserves=$1000000

Excess reserves=Actual reserves -Reserves required

Excess reserves=1000000-600000

Excess reserves=$400000

Hence if the bank's reserves is $1000000, checking deposits be $3000000 and the required reserve ratio be 20% then the bank has excess reserves of $400000.

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