If the bank holds $65 million in deposits and currently holds
bank reserves such that excess reserves are zero, what
required reserves ratio is implied?
To calculate the required reserves ratio implied by this scenario, we need to know the definition of the required reserve ratio and then determine how it applies to the given information.
The required reserves ratio is the percentage of a bank's total deposits that it must hold as reserves. It is set by the central bank (in the United States, it is the Federal Reserve) and serves as a tool to control the money supply and ensure the stability of the banking system.
In this case, we know that the bank's excess reserves are zero, which means that it is holding only the required amount of reserves. Excess reserves are the portion of a bank's reserves that exceed the required reserves ratio.
To determine the required reserves ratio, we can use the formula:
Required Reserves = Total Deposits * Required Reserves Ratio
Given:
Total Deposits = $65 million
Excess Reserves = $0 (which means Required Reserves = Total Reserves)
Since we know that excess reserves are zero, we can conclude that the bank is holding its required reserves, which in turn implies that the required reserves ratio would be 100% (or 1 in decimal form).
Required Reserves Ratio = Required Reserves / Total Deposits
Since Required Reserves = Total Reserves and Excess Reserves = 0, we can rewrite the formula as:
Required Reserves Ratio = Total Reserves / Total Deposits
We don't have the exact information about the total reserves in this scenario, so we cannot calculate the required reserves ratio precisely. However, since the excess reserves are zero, we can infer that the bank is holding the precise required reserves, which results in a required reserves ratio of 100%.
In summary, based on the given information, the implied required reserves ratio would be 100% (or 1 in decimal form).