Question

A bank currently has $150 million in "hot money" deposits against which it wants to hold an 80 percent reserve and $90 million in vulnerable deposits against which it wants to hold a 30 percent reserve. It also has $45 million in stable deposits against which it wants to hold a 5 percent reserve. Legal reserves for the bank are 5 percent of all deposits. What is the bank's liability liquidity reserve?

Answer 1

Answer:

The right response is "141.7875".

Explanation:

According to the question,

The total reserves held will be:

=  $0.8\times 150+0.3\times 90+0.05\times 45$

=  $120+27+2.25$

=  $149.25$

Deductions will be:

=  $5 \ percent \ of \ 149.25$

=  $0.05\times 149.25$

=  $7.4625$

now,

The bank's liability liquidity reserve will be:

=  $Total \ reserves \ held-Deductions$

=  $149.25-7.4625$

=  $141.7875$