Calculate average collected balance at typical deposit bank

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Reference no: EM13975231

The following data were recently collected by the cash manager at RAYCO Department Stores, Inc

Day/Dollar Deposit

Monday/$1,500

Tuesday/ $2,000

Wednesday/ $1000

Thursday/ $10,000

Friday/ $25,000

Saturday/ $35,000

Sunday/ $10,000

These daily deposits are typical of RAYCO's ten regional stores. RAYCO is headquartered in Oklahoma City and concentrates cash from the ten local deposits banks to its concentration in Oklahoma City. You may assume that RAYCO's opportunity investment rate is 10 percent, the ECR IS 8 percent and the reserve requirement is 12 percent. Further assume that RAYCO uses EDTs to concentrate the cash balances and that the EDT is initiated on the day of deposit and clears the next day. Deposits are made before the daily ledger cut-off time. Also half of each deposit is cash and half is in checks with one day availability. Finally, assume that no bank clearing activity is conducted on the weekends and beginning ledger and collected balance for the first week are equal to zero.

a. Assuming that the deposit schedule is a typical of each week, create two weeks of deposit and transfer clearing activity similar clearing activity similar to the in text examples given Tri-Teck.

b. Calculate the average collected balance at the typical deposit bank.

c. Assuming that each EDT cost $1.00, calculate the dollar amount of collected balances required to compensate the deposit bank.

d. What is the total cost of the cash concentration system for one bank for one week?

e. Can you suggest any improvement in RAYCO's cash concentration system?

Reference no: EM13975231

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