Question

A bank is required to maintain an average daily balance at the Fed of $700 million. On the first day of the maintenance period it maintains a balance of $750 million, the next two days it maintains a balance of $725 million, the next three days it maintains a balance of $625 million, the next three days it maintains a balance of $775 million, the next two days it maintains a balance of $700 million, and the next two days it maintains a balance of $675 million. What does its balance at the Fed has to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit? A. $700 million B. $650 million C. $750 million D. $325 million E. None of the options is correct

Answer 1

B. $650 million

Step-by-step explanation:

total excess balance = 50 + 2*25 + 3*-75 + 75*3 + 2*0 + 2*-25

total excess balance = 50

so in the last day it can fall short by 50

last day balance = 700 - 50 = 650

Therefore, The balance at the Fed has to be 650 million on the last day of the maintenance period in order to have a zero cumulative reserve deficit