A bank has the following assets: $80 in Reserves, 5350 in Bonds, $550 in Loans.
A bank has the following assets: $80 in Reserves, 5350 in Bonds, $550 in Loans.
It has the following Liabilities: $600 in Checkable Deposits, $200 Borrowings
The bank experiences an outflow of deposits of $50. The bank takes a loan from the Fed to meet the reserve requirement of 10%. If the bank take the minimum amount necessary, what is the new level of borrowings?
Homework Answers
The bank experiences an outflow of deposits of $50.
So, after this outflow of deposits of $50, the bank's checkable deposits will be $550 and reserves will be $30.
The reserve requirement is 10%.
Required reserves to be maintained = $550 * 0.10 = $55
So, bank has to maintain $55 as reserves but it has only $30. This means that it must arrange ($55 - $30) $25 to meet reserve requirement.
Thus, it will borrow $25 from Fed.
After borrowing, the new level of borrowings is ($200 + $25) $225.
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