Can anyone help me to solve that problem. I can give a lifesaver.... Q-Assume a

Question

Can anyone help me to solve that problem. I can give a lifesaver....

Q-Assume a depository institution holds vault cash of $3 million, reserve deposits at the Fed of $25 million, and has borrowed $2 million from the Fed's discount window. If that institution holds $300 million in transactions deposits and is subject to a 3 percent reserve requirement on the first $50 million of those deposits and to a reserve requirement of 10 percent on all transactions deposits over $50 million, what are its required reserves? What are its excess reserves?

Explanation / Answer

The bank has total reserves equal to the sum of their vault cash ($3) and reserve deposits at the Federal Reserve ($25) or $28 million. The required reserves amount is $26.5 million leaving the bank with $1.5 million in excess reserves. Of the $1.5 million in excess reserves, $2 million is borrowed from the Federal Reserve, leaving the bank in a -$.5 million net borrowed reserve position.

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