A Bank Has $50,000 in Deposits from Its Checking Account

question 14

Multiple Choice

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 had remained in the checking accounts of the loan recipients but it now has been converted to cash by the loan recipients. The bank had $50,000 cash on hand prior to the remaining loan proceeds being converted to cash, and the reserve requirement is 25%. The reserve ratio for this bank after the remaining loan proceeds are converted to cash is _____, and _____ meeting its reserve requirement.

• A) 14%; it is not
• B) 53.76%; it is
• C) 0.002%; it is not
• D) 20%, it is

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Definitions:

Accounts Payable

Liabilities of a business that are owed to creditors for goods and services purchased on credit.

Times Interest Earned

A metric used to measure a company's ability to meet its debt obligations, calculated by dividing earnings before interest and taxes (EBIT) by interest expenses.

Tax Rate

The percentage at which an individual or corporation is taxed, determining the portion of income or profits that must be paid to the government.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including the material and labor costs.