The Required Reserve Rate Set by the Fed Is Ten

question 97

Essay

The required reserve rate set by the Fed is ten percent of all checkable deposits. A bank sells
$1 million of U.S. Treasury securities it owns to the Fed. Describe what this transaction does to the bank's total reserves, its required reserves and its excess reserves.

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Definitions:

Foreign Corporation

A company that is incorporated in a country outside of where it operates or conducts its business.

Inventory

Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Consolidated Income Tax Return

A single income tax return filed by a parent company and its subsidiaries, considered as one entity for tax purposes.

Intra-entity Transfers

Transfers of goods, services, or assets between divisions or units within the same company.