Introduction to Finance

101
b. 
How would your answer in Part (a) change if the required reserves 
ratio was increased to 12 percent? 
4. 
A bank has $10 million in vault cash and $110 million in deposits. 
If total bank reserves were $15 million with $2 million considered to 
be excess reserves, what required reserves ratio is implied?
5. 
The Friendly National Bank holds $50 million in reserves at 
its Federal Reserve District Bank. The required reserves ratio is 
12 percent. 
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?
b. 
If the bank holds $10 million in vault cash, determine the re-
quired reserves ratio that would be needed for the bank to avoid a 
reserves defi cit.
c. 
If the Friendly National Bank experiences a required reserves 
defi cit, what actions can it take to be in compliance with the exist-
ing required reserves ratio? 
6. 
Assume that banks must hold a 2 percent reserve percentage 
against transaction account balances up to and including $40 mil-
lion. For transaction accounts above $40 million, the required reserve 
percentage is 8 percent. Also assume that Dell National Bank has 
transaction account balances of $200 million.
a. 
Calculate the dollar amount of required reserves that Dell 
National Bank must hold.
b. 
What percentage of Dell’s total transaction account balance 
must be held in the form of required reserves?
7. 
Assume that the Fed decides to increase the required reserve per-
centage on transaction accounts above $40 million from 8 percent 
to 10 percent. All other information remains the same as given in 
Problem 6, including the transaction account balances held by Dell 
National Bank.