Question

Suppose the reserve requirement is currently 20%. Instructions: Enter your answers as a whole number.

a. Assume Second Bank has deposits of $300 million. Calculate the required reserves for Second Bank. $ million.
b. At the end of the day, Second Bank has $65 million of reserves. Will Second Bank be a borrower or lender in the federal funds market

Answer 1

Consider the following calculations

Step-by-step explanation:

a,) required reserves = (20/100) x $300 million = $60 million

b.) Since second bank has reserve of $65 million but needed only $60 million so the bank can LEND reserves of $5 million in the federal funds market.