Question

The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $300 million of required reserves, $75 million of excess reserves, have issued $7,500 million of deposits, and hold $225 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. Refer to Scenario 29-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and the reserve ratio for Tazian Banks

Answer 1

Answer:

Reserve requirement is the percentage of deposits that the monetary authority keeps in reserves out of deposits.

Reserve requirement = Required reserves / Total deposits

= 300 / 7,500

Reserve requirement  = 4%

Reserve ratio is the percentage of reserves held by the banks.

= (Required reserves  + excess reserves ) / Total deposits

= ( 300 + 75) / 7,500

Reserve ratio = 5%