document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=715881>Question 715881</A>: <I><SPAN STYLE=\"word-break: break-all;\"> 5. The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank. The required reserves ratio is 12 percent.\r<BR>\n" );
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document.write( "a. If the bank has $600 million in deposits, what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio?\r<BR>\n" );
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document.write( "b. If the bank holds $10 million in vault cash, determine the required reserves ratio that would be needed for the bank to avoid a reserves deficit.\r<BR>\n" );
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document.write( "c. If the Friendly National Bank experiences a required reserves deficit, what actions can it take to be in compliance with the existing required reserves ratio?\r<BR>\n" );
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document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #439649 by </B><A HREF=/tutors/aboutme.mpl?userid=jim_thompson5910><B>jim_thompson5910(35256)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=jim_thompson5910><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/images/nopicture.jpg><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=439649\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> a)\r<BR>\n" );
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document.write( "12% of 600 million = 0.12*600 = 72 million\r<BR>\n" );
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document.write( "So they need $72 in cash in the vault to be in compliance with the required reserves ratio\r<BR>\n" );
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document.write( "b)\r<BR>\n" );
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document.write( "(10/600)*100 = 0.01666666666667*100 = 1.666666666667 = 1 and 2/3% reserves ratio\r<BR>\n" );
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document.write( "So the answer is 1.6667% or 1 and 2/3%\r<BR>\n" );
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document.write( "c)\r<BR>\n" );
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document.write( "It needs to add more cash to the vault or lower the total amount of deposits in the bank. \r<BR>\n" );
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document.write( "If it goes with option 1, then it needs to have $72 million (so it needs to add 72 - 10 = 62 million)\r<BR>\n" );
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document.write( "If it goes with option 2, then it should reduce the total amount deposited to 10/0.12 = 83.333 million (roughly). So it would need to remove 600 - 83.333 = 516.667 million from its deposits (and give that money back to the customers)\r<BR>\n" );
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document.write( "Either option is viable and it will depend on the situation which one is best. \r<BR>\n" );
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