A Bank Has the Following Assets: Reserves of $15 Million;

question 28

Essay

A bank has the following assets: Reserves of $15 million; Loans of $150 million; and
Securities of $50 million. Their liabilities include Deposits of $150 million; Borrowed funds of
$35 million and Bank Capital of $30 million. If the required reserve rate is 10 percent, answer the following: What is the amount of excess reserves the bank is currently holding? What are the options available to the bank if customers decide to withdraw $10 million in deposits?

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Definitions:

Drying Cycle

The process or period during which moisture is removed from items, typically in a dryer, until they are deemed dry.

Autoclaves

sterilization devices that use steam under pressure to kill bacteria, viruses, fungi, and spores on medical or scientific equipment.

Pressure

The force per unit area applied on a surface, important in various scientific, engineering, and health-related contexts.

Sterilization

The process of making something free from all forms of microbial life, including bacteria, viruses, spores, and fungi.