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A bank currently has $150 million in deposits, and $15 million in reserves. The required reserve ratio is 10% and federal funds rate of 0.25%. Suppose there is a deposit outflow (i.e. someone withdraws funds from their account) for $5 million. Please provide answers to the following questions with explanations:
-Would this bank still comply with the Fed´s requirement of keeping 10% of its deposits in the form of reserves? Please explain
-What would be the cost for this bank to comply with this regulation if the bank decides to borrow from another bank to eliminate its reserve shortage?
-What would be the cost for this bank to comply with its required reserves if the bank decides to borrow from the Fed at a discount rate of 0.75%?
-Please explain why required reserves serve as insurance against deposit outflows.
Consider a commercial bank policy to maintain 12% of deposits as reserves. The bank currently has $10 million in deposits and holds $400,000 precautionary excess reserves. What is the required reserve on a new deposit of $50,000?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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