Question

Assume a bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1 million in excess reserves and the required reserves ratio is 8 percent, what is the minimum required reserve?

Answer 1

$76 million

Step-by-step explanation:

($6 million/.08) + $1 million = $75 million + $1 million = $76 million

Answer 2

Minimum Required Reserve are 1.33

Step-by-step explanation:

The formula for the calculation of Cash reserve ratio is as follows:

Cash Reserve Ratio = Reserve Requirement x Bank Deposits

Cash Reserve Ratio = Reserve Requirement x ( Bank deposit + cash in vault )

8 = Reserve Requirement x ( 5 + 1 )

8 = Reserve Requirement x 6

Reserve Requirement = 8/6

Reserve Requirement = 4/3

Reserve Requirement = 1.33