The Required Reserve Rate Set by the Fed Is Ten

question 97

Essay

The required reserve rate set by the Fed is ten percent of all checkable deposits. A bank sells
$1 million of U.S. Treasury securities it owns to the Fed. Describe what this transaction does to the bank's total reserves, its required reserves and its excess reserves.

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Definitions:

Normal Balance

The side (debit or credit) of an account that is positive or increasing in nature, depending on the type of account.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred.

Uncollectibles

Financial term referring to debts or receivables that are deemed unlikely to be collected and thus written off.

Partial Balance Sheet

A snapshot of a portion of a company's financial position at a specific point in time, focusing on certain assets, liabilities, or equity sections rather than the complete picture.