Question

The bank you own has the following balance sheet: (2 points) assets liabilities reserves aed 75 million deposits aed 500 million loans aed 525 million capital aed 100 million if are the manager of the bank, and it suffers a deposit outflows of aed 50 million. the required reserve ratio is 10%, what actions should you take? (hint: mention the action and its value in number)

Answer 1

To maintain the required reserves, the bank should decrease loans by AED 5 million in response to the deposit outflow.

Step-by-step explanation:

To calculate the actions you should take in response to a deposit outflow, we need to first determine the required reserves. The required reserve ratio is 10%, and the bank experiences a deposit outflow of AED 50 million. So, we need to multiply the deposit outflow by the required reserve ratio:

Required reserves = Deposit outflow * Required reserve ratio
Required reserves = AED 50 million * 10% = AED 5 million

To maintain the required reserves, the bank can take the following action:

1. Decrease loans by the amount of required reserves:
   Loans decrease = Required reserves = AED 5 million

Therefore, the bank should decrease its loans by AED 5 million in response to the deposit outflow.