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9 November, 19:13

Suppose that National Bank of Guerneville has $33 million in checkable deposits, Commonwealth Bank has $41 million in checkable deposits, and the required reserve ratio for checkable deposits is 10%. If National Bank of Guerneville has $4 million in reserves and Commonwealth has $5 million in reserves, how much in excess reserves does each bank have?

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  1. 9 November, 19:41
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    National Bank of Guerneville : $4mn - $3.3mn = $0.7 million.

    Commonwealth Bank : $5mn - $4.1mn = $0.9 million.

    Explanation:

    Since the reserve ration for the checkable deposits is 10%, that means the National bank of Guerneville has to maintain $3.3 million in the reserves, while it maintains $4 million, hence excess of $0.7 million.

    Secondly, Commonwealth bank has to maintain $4.1 million in the reserves, while it maintains $5 million, hence excess of $0.9 million.

    Hope this clear things up.

    Good Luck.
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