ity Bank has estimated that its average daily net transaction accounts balance o
ID: 2649130 • Letter: I
Question
ity Bank has estimated that its average daily net transaction accounts balance over the recent 14-day computation period was $225 million. The average daily balance with the Fed over the 14-day maintenance period was $10 million, and the average daily balance of vault cash over the two-week computation period was $5 million. a. Under the rules effective in 2013, what is the amount of average daily required reserves to be held at the Fed during the reserve maintenance period for these demand deposit balances? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) Average daily reserve required $ million b-1. What is the average daily balance of reserves held by the bank over the maintenance period? (Enter your answer in millions.) Average daily balance of reserves held $ million b-2. By what amount were the average reserves held higher or lower than the required reserves? (Input the amount as a positive value. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) The average reserves were ( ) by $ million. c. If the bank had transferred $35 million of its deposits every Friday over the two-week computation period to one of its off-shore facilities, what would be the revised average daily reserve requirement? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) Revised average daily reserve requirements S millionExplanation / Answer
SOLUTION:
a. Calculation of Average daily reserve required.
Reserve requirements = (0 * $12.4m) + ($79.5m - $12.4m) (0.03) + ($225m - $79.5) (0.10)
Reserve requirements = 0 + $2.013m + $14.55m
Reserve requirements = $16.563m
After subtracting the average daily balance of vault cash of $5 million, the bank needs to maintain a daily average of $11.563 million ($16.563 million - $5 million) during the maintenance period.
b.
The average daily balance over the maintenance period was $10 million.
b-2
Therefore, average reserves held were short $1.563 million.
c.
For the 14-day period, the sum of its daily average is = $225 x 14 = $3,150. If $35 million is transferred on Friday, the total reduction is $210 million over two weekends ($35m x 3 days x 2 weekends)
The total 14-day balance is $2,940.
The average daily is $216.4286 million
Reserve requirements = 0 * $12.4m) + ($79.5m - $12.4m) (0.03) + ($216.4286 - $79.5) (0.10)
Reserve requirements = 0 + $2.013m + $13.69286m
Reserve requirements = $15.70586 million
City Bank needs to maintain average reserves of $10.70586 ($15.70586 - $5m)
During the maintenance period. Since it had $10 million of reserves, extra reserves of $0.70586 per day will need to be set aside.
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