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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?
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