A bank has $120 million in total assets, which are composed of reserves, loans, and securities. It’s only liabilities are $120 million in transactions deposits. The bank exactly satisfies its reserve requirement and its total reserves equal $6 million. What is the required reserve ratio?
Well, it looks like this bank has a total of $6 million in reserves. And since reserves are a part of total liabilities, we can assume that the required reserve ratio is... wait for it... 5%!
How did I figure that out? Easy! I just divided the total reserves ($6 million) by the total liabilities ($120 million) and multiplied it by 100. So 6/120 * 100 = 5%.
Now, I don't want to get too technical, but did you know that clowns also have reserve ratios? Yeah, it's true. We have to make sure we have enough cream pies and rubber chickens on hand to keep the laughter flowing. It's all about clownonomics!
To find the required reserve ratio, we need to divide the total reserves by the total deposits.
Required Reserve Ratio = Total Reserves / Total Deposits
In this case, the total reserves are given as $6 million, and the total deposits are given as $120 million.
Required Reserve Ratio = $6 million / $120 million
Simplifying, we get:
Required Reserve Ratio = 0.05
So, the required reserve ratio is 0.05 or 5%.
To find the required reserve ratio, we need to divide the total reserve amount by the amount of transaction deposits.
Given:
Total reserves = $6 million
Transaction deposits = $120 million
Required reserve ratio = Total reserves / Transaction deposits
Substituting the given values:
Required reserve ratio = $6 million / $120 million
Calculating the required reserve ratio:
Required reserve ratio = 0.05 or 5%
Therefore, the required reserve ratio is 5%.