Question

Refer to table 29-5. if the bank faces a reserve requirement of 20 percent, then it

Answer 1

Without specific deposit information for First Bank of Roswell, we cannot determine its reserve status with a 20 percent reserve requirement. However, if the public shifts from holding currency to bank deposits, bank reserves increase.

Step-by-step explanation:

If the First Bank of Roswell faces a reserve requirement of 20 percent, then we first need to know the total amount of deposits to determine whether it has excess reserves, needs more reserves, or just meets its reserve requirement.

However, without specific details in the provided passages, we cannot calculate the exact reserve situation of the First Bank of Roswell.

Regarding the second part of the question, if the public decides to hold less currency and more deposits in banks, bank reserves would increase because more funds are being deposited into bank accounts, thus increasing the total reserves held by the banks.

The First Bank of Roswell Refer to Table 29-5. If the bank faces a reserve requirement of 20 percent, then it has $10,000 of excess reserves needs $10.000 more reserves to meet its reserve requirements needs $20,000 more reserves to meet its reserve requirements just meets its reserve requirement If the pubic decides to hold less currency and more deposits in banks, bank reserves

Answer 2

When a bank faces a reserve requirement of 20 percent, it must set aside 20% of its deposits as reserves and cannot use that portion for lending. If Humongous Bank has to keep 5% of its $20 million as reserves, it will reserve $1 million and have $19 million to loan out. An increase in reserve requirement means that a bank must find ways to hold more cash as reserves, possibly by calling in loans or selling assets.

Step-by-step explanation:

If a bank faces a reserve requirement of 20 percent, it means that the bank must keep 20% of its deposit liabilities as reserves. This is money that cannot be loaned out and must be either kept in the bank's vault or deposited at the central bank. A reserve requirement is a tool used by the central bank to ensure financial stability, and it directly impacts the amount of money that banks can loan out.

Using the information provided, if Humongous Bank has $20 million in deposits and a reserve requirement of 5%, this means it must hold $1 million (5% of $20 million) as reserves. After complying with this reserve requirement, Humongous Bank will have the remaining $19 million available to make loans.

If the reserve requirement were to increase, for instance from 9% to 10%, banks would have several options to meet the additional requirement. They could call in loans, sell securities, raise fresh capital, or reduce their assets in other ways to increase their reserves. Each option has its trade-offs and potential impacts on the bank's operations and liquidity.