Question

If a bank has $10 million on deposit, and the Federal Reserve specifies a reserve requirement of 30 percent, then how much money would the bank need to keep on hand at all times?

Answer 1

The amount of money which the bank need to hand all times is $7 million

Step-by-step explanation:

The amount of money which the bank need to hand all times is computed as:

First computing the amount of reserve as:

Reserve amount = Deposit amount × Reserve requirement percent

where

Deposit amount is $10 million

Reserve requirement percent is 30%

Putting the values above:

Reserve amount = $10 million × 30%

Reserve amount = $3 million

Now, computing the amount of money which bank need to hand:

Amount of money = Deposit amount - Reserve amount

Amount of money = $10 million - $3 million

Amount of money = $7 million