Describe How Actual Reserves Are Calculated and Explain the Difference

question 505

Essay

Describe how actual reserves are calculated and explain the difference between desired reserves and excess reserves. How do reserves affect the amount of loans a bank can make?

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Definitions:

Required Rate Of Return

The minimum annual percentage earnings needed from an investment to make it worthwhile, factoring in risk.

IRR

An investment's IRR represents the discount rate that makes the sum of all future cash flows (positive and negative) from the investment equal to zero, effectively measuring its annual growth rate.

NPV

Net Present Value; the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Payback

The length of time it takes for an investment to generate an amount of money equal to the cost of the investment, used as a basic measure of the investment's risk.