A Bank Maintains an Average Clearing Balance of $1,000,000 with the Federal

question 84

Multiple Choice

A bank maintains an average clearing balance of $1,000,000 with the Federal Reserve.The Federal funds rate is currently 4.5 percent.What amount of credit will the bank earn over the reserve maintenance period that can be used to offset any fees charged by the Federal Reserve?

• A)$17,500
• B)$1,750
• C)$45,000
• D)$12,500
• E)None of the options is correct

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Definitions:

Variable Overhead

Costs that change in proportion to the activity or volume of production but are not directly associated with the production of a specific unit, such as utilities.

Direct Labour Hours

The total hours worked by employees that are directly involved in the production process.

Factory Overhead Rate

A calculation used to assign manufacturing overhead costs to individual units of production, based on a certain activity base.

Flexible Budget

A budget that adjusts to changes in the volume of activity, allowing for better comparison with actual costs.