Assume That the Desired Reserve Ratio Is 20 Percent

question 33

Multiple Choice

Assume that the desired reserve ratio is 20 percent.First National Bank has vault cash and deposits with the Bank of Canada of $80 million,loans and securities of $320 million,and demand deposits of $400 million.Which of the following statements about First National is the most accurate?

• A)It could extend a maximum of $40 million of additional loans.
• B)It could extend a maximum of $20 million of additional loans.
• C)It could extend a maximum of $10 million of additional loans.
• D)It is not in a position to extend additional loans.

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Definitions:

Horizontal Analysis

A financial analysis technique that evaluates changes in financial statement line items over a series of reporting periods.

Vertical Analysis

A method in financial accounting where each entry in a financial statement is listed as a percentage of a base figure, facilitating the comparison of financial statements over different periods.

Accounts Receivable Turnover

A financial ratio that measures how efficiently a company collects revenue by comparing net credit sales to the average accounts receivable.

Days' Sales

A measure of how efficiently a company converts its inventory into sales, typically calculated as days' sales in inventory or days sales outstanding.