Scenario 11-2 A Bank's Assets Consist of $1 000 000 in Total

question 114

Multiple Choice

Scenario 11-2
A bank's assets consist of $1 000 000 in total reserves, $2 100 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $3 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-2.If the desired reserve ratio is 40 percent,what is the level of the bank's excess reserves?

• A)Excess reserves are $500 000.
• B)Excess reserves are zero.
• C)The bank has insufficient reserves to meet its reserve requirements.
• D)Excess reserves are $200 000.

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Definitions:

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, often used in calculating the cost of inventory or the average cost of capital.

Unit Cost

The cost incurred to produce, purchase, or acquire a single unit of a product or service.

FIFO Costing

An inventory valuation method where the costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold.

Gross Profit

The difference between sales revenue and the cost of goods sold (COGS), indicating the profitability of a company's core business activities.