if a bank has $100 million in deposits and $17 million in reserves with a reserve requirement of 0.15, how much does its excess reserves have?
To find out how much excess reserves a bank has, you need to calculate the required reserves first and then subtract them from the actual reserves.
The required reserves can be calculated by multiplying the total deposits by the reserve requirement ratio:
Required reserves = Deposits * Reserve requirement ratio = $100 million * 0.15 = $15 million
To find the excess reserves, subtract the required reserves from the actual reserves:
Excess reserves = Actual reserves - Required reserves = $17 million - $15 million = $2 million
Therefore, the bank has $2 million in excess reserves.
how much can it lend?
The amount that a bank can lend is determined by its excess reserves. A bank can lend a portion of its excess reserves, while still maintaining the required reserves set by the reserve requirement ratio.
In this case, the bank has $2 million in excess reserves. However, the specific lending capacity of the bank would depend on various factors such as its lending policies, risk appetite, and regulatory restrictions.
Generally, banks are allowed to lend a multiple of their excess reserves. The specific multiple often varies depending on the country and the bank's individual circumstances. For illustration purposes, let's say the bank is permitted to lend up to 10 times its excess reserves.
Lending capacity = Excess reserves * Lending multiple
= $2 million * 10
= $20 million
Based on this assumption, the bank could have a lending capacity of up to $20 million.
It's important to note that this calculation is based on general assumptions, and the lending capacity of a bank can vary depending on a range of factors.
To find the excess reserves of the bank, we need to calculate the required reserves first.
Required Reserves = Deposits * Reserve Requirement
Required Reserves = $100 million * 0.15
Required Reserves = $15 million
To find the excess reserves, we subtract the required reserves from the total reserves.
Excess Reserves = Total Reserves - Required Reserves
Excess Reserves = $17 million - $15 million
Excess Reserves = $2 million
Therefore, the bank has $2 million in excess reserves.
To calculate the excess reserves of a bank, you need to understand the reserve requirement and how it affects the calculation.
The reserve requirement is the percentage of a bank's total deposits that it must hold in reserves. In this case, the reserve requirement is 0.15 or 15%.
To calculate the required reserves, multiply the bank's deposits by the reserve requirement:
Required Reserves = Deposits * Reserve Requirement
In this case, the bank has $100 million in deposits, so the required reserves would be:
Required Reserves = $100 million * 0.15
Required Reserves = $15 million
Now, to calculate the excess reserves, subtract the required reserves from the actual reserves:
Excess Reserves = Actual Reserves - Required Reserves
The bank has $17 million in actual reserves, so the excess reserves would be:
Excess Reserves = $17 million - $15 million
Excess Reserves = $2 million
Therefore, the bank has $2 million in excess reserves.