Answer:
Explanation:
Calculation of the amount of required reserve as follows:
Required Reserve = Deposit * required reserve ratio
= $500 million * 10%
= $50 million
Therefore, the bank must hold $50 million in required reserve.
It currently has $75 million in reserve so this requirement is met.
If the bank suffers a deposit outflow of $50 million
Assets Liabilities
Reserves - $25 million Deposits - $450 million
Loans - $525 million Bank capital - $100 million
So the required reserve is $450 * 10/100 = $45 million.
But in the reserve account we have only 25 million so we are falling short of $20 million. We need to maintain this required reserve so we can take following actions: 1. By borrowing $20 millions from other bank or financial institutions or corporations. 2. We can sell securities of $20 million. 3. We can borrow some money and can raise some money by issuing securities.
