Reference no: EM13271551
You have been asked to assess the impact of possible changes in reserve requirement components on the dollar amount of reserves required. Assume the reserve percentages are set at 2 percent on the first $50 million of traction account amounts, 4 percent on the second $50 million, and 10 percent on transaction amounts over $100 million. First National Bank has transaction account balances of $100 million, while Second National Bank's transaction balances are $150 million and Third National Bank's transaction balances are $250 million.
a. Determine the dollar amounts of required reserves for each of the three banks.
b. Calculate the percentage of reserves to total transactions accounts for each of the three banks.
c. The Central Bank wants to slow the economy by raising the reserve requirements for member banks. To do so, the reserve percentages will be increased to 12 percent on transaction balances above $100 million. Simultaneously, the 2 percent rate will apply on the frist $25 million. Calculate the reserve requirement amount for each of the three banks after these changes have taken place.
d. Show the dollar amount of changes in reserve requirement amounts for each bank. Calculate the percentage of reserve requirement amounts to transaction accountbalances for each bank.
e. Which of the two reserve requirement changes discusses in (c) causes the greatest impact on the dollar amount of reserves for all three of the banks?
f. Now assume that you could either (1) lower the transactions account amount for the lowest category from $50 million down to $25 million or (2) increase the reserve percentage from 10 percent to 12 percent on transactions account amounts over $200 million. Which choice woud you recommend if you were trying to achieve a moderate slowing of economic activity?
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