Question

The average daily net transaction accounts of a local bank during the most recent reserve computation period was $923 million. The amount of average daily reserves held by this bank at the Fed during the reserve maintenance period was $39.05 million, and the average daily vault cash corresponding to the maintenance period was $13.51 million.

Required:
What was the required amount of average daily reserves the bank needed to hold at the Fed during the maintenance period (assuming the progressive rates listed below currently apply)

Answer 1

The required amount of the average daily reserves is $69.85 million

Step-by-step explanation:

In this question, we are asked to calculate the required amount pf daily reserves needed to be held by the bank during the maintenance period.

We proceed as follows;

In accordance with the Federal Reserves regulation D of the securities act of 1993, banks in the US are required to hold the following target minimum against net transaction account;

Less than $12.4 million 0%

$12.4 million to $79.5 million 3%

Above $79.5 million 10%

We now calculate the reserve requirement as follows;

Reserve requirement = (0 × $12.4 million) + ($79.5 million - $12.4 million)(3%) + ($923 million - $79.5 million)(10%) = 0 + 2.013 + 84.35 = $83.36 million

To calculate the target daily average, we deduct the average daily balance of $13.51 million from the reserve requirement

Target daily average = Reserve requirement - average daily balance of vault cash

Target daily average = $83.36 million - $13.51 million = $69.85 million