Question

Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent.
Assets
Reserves$27,000
Loans50,000
Securities33,000
Property200,000
Liabilities and net worth
Demand deposits$110,000
Capital stock200,000
Refer to the above data. This commercial bank has excess reserves of:
A. $0.
B. $3,000.
C. $12,000.
D. $5,000.
E. $7,000.

Answer 1

Answer:Excess Reserve = $ 27,000 - $ 22,000 = $ 5,000

Explanation:

Given:

Assets :

Reserves = $27,000

Loans = $50,000

Securities = $33,000

Property = $200,000

Liabilities and net worth :

Demand deposits = $110,000

Capital stock = $200,000

First we'll compute required reserve using the following formula:

Excess Reserves (ER) = Total Reserves - Required Reserves

where;

Required Reserves = the Required Reserve Ratio (RR) x DEPOSITS

Required Reserves = 0.20 x $ 110,000 = $ 22,000

∴

Excess Reserve = $ 27,000 - $ 22,000 = $ 5,000