Suppose American Bank has $500 in deposits and $200 in reserves and that the required reserve ratio is 10 percent. In this situation, American Bank has A. $50 in required reserves. B. $50 in excess reserves. C. $200 in excess reserves. D. $200 in required reserves.

Question

Mitchell Odom

Business

21 December, 22:05

Suppose American Bank has $500 in deposits and $200 in reserves and that the required reserve ratio is 10 percent. In this situation, American Bank has A. $50 in required reserves. B. $50 in excess reserves. C. $200 in excess reserves. D. $200 in required reserves.

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Answers (1)

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Tony Donaldson · Answer 1

A. $50 in required reserves.

Explanation:

Required reserve is a reserve amount which is required by the regulatory authority to a bank to maintain as a percentage of total deposit. Sometimes the bank reserve extra amount above the requirement to deal with any abnormal transaction. This value is known as the excess reserves.

As per given data

Deposits = $500

Reserves = $200

Required Reserve ratio = 10 percent

Required reserve = Reserve required / Total Deposit

0.1 = Reserve required / $500

Reserve Required = $500 x 0.1

Reserve Required = $50

Excess reserve value = Actual Reserve - Required reserve = $200 - $50 = $150