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What is the implicit interest cost of demand deposits

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Question - A financial institution has estimated the following annual costs for its demand deposits:

Management cost per account = $140

Average account size = $1,500

Average number of checks processed per account per month = 75

Cost of clearing a check = $0.10

Fees charged to customer per check = $0.50

Average fee charged per customer per month = $8

(i) What is the implicit interest cost of demand deposits for the financial institution?

(ii) If the financial institution has to keep an average of 8 percent of demand deposits as required reserves with the central bank paying no interest, what is the implicit interest cost of demand deposits for the financial institution?

Reference no: EM133017135

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