Question

Johnny's credit union was formed so that friends of Johnny could start their own depository institution. Johnny's credit union μst maintain its required reserves at 12% of total deposits. Assume Johnny's CU has $250 million in deposits and has a policy of maintaining 15% of reserves. What is the excess reserve amount?

a) $18.75 million

b) $37.50 million

c) $31.25 million

d) $43.75 million

Answer 1

The excess reserve amount for Johnny's credit union is $7.5 million, which is not listed among the available options provided.

Step-by-step explanation:

You're trying to calculate the excess reserve amount for Johnny's credit union. If Johnny's credit union is required to maintain 12% of its $250 million in deposits as required reserves, that amounts to $30 million (12% of $250 million). However, the credit union has a policy to maintain 15% in reserves instead, which would be $37.5 million (15% of $250 million). The excess reserves are the amount of reserves that exceed the required reserves. Therefore, if they have $37.5 million in reserves but only need $30 million to meet the requirement, the excess reserve is $37.5 million minus $30 million, which equals $7.5 million. None of the options (a) $18.75 million, (b) $37.50 million, (c) $31.25 million, (d) $43.75 million accurately reflects the correct amount of $7.5 million in excess reserves.