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Assume that the required reserve ratio=8%. Customers of ABC bank have, in aggregate, deposited $6 million in their checking and saving accounts on day 1. Also on day 1, ABC bank borrow $3 million in long term debt. ABC bank does not have any other liabilities.
A. What is the most that ABC bank can lend out to other customers on day 1 and still meet reserve requirements?
B. Assume that ABC kept just enough reserve to meet its reserve requirements on day 1. The rest were lent out to customers. The next day, customer made withdrawals of $110,000 and deposited $75,000. Assuming ABC bank did not sell any loans and no loans matured, how much excess reserves would ABC have at the end of day 2? ( Excess reserves can be either positive or negative)
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