Question

Excess reserves A. are reserves banks keep above the legal requirement. B. are reserves banks keep to meet the reserve requirement. C. are loans made at above market interest rates. D. are the deposits that banks do not use to make loans. Suppose the required reserve ratio is 1313​% and a bank has the following balance​ sheet: Assets Liabilities Reserves ​$2 comma 0002,000 Deposits ​$10 comma 00010,000 Loans ​$8 comma 0008,000 This bank keeps required reserves of ​$nothing and excess reserves of ​$nothing. ​(Enter your responses as​ integers.)

Answer 1

Answer:

The correct answer is A

Required reserve is $1,300

Excess reserve is $700

Explanation:

Excess reserve is the capital reserve that is held by the financial institutions or the banks in excess or more of what is needed by the creditors, internal controls or the regulators.

So, it is the reserves banks need to keep above the legal requirements.

The required reserve is computed as:

Required reserve = Reserve ratio × Deposits

= 13% × 10,000

= $1,300

Excess reserve is computed as:

Excess reserve = Reserves - Required reserve

= $2,000 - $1,300

= $ 700