Question

City Bank has estimated that its average daily net transaction accounts balance over the recent 14-day computation period was $235 million. The average daily balance with the Fed over the 14-day maintenance period was $9.5 million, and the average daily balance of vault cash over the two-week computation period was $6 million. Picture a. Under the rules effective in 2013, what is the amount of average daily required reserves to be held at the Fed during the reserve maintenance period for these demand deposit balances? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) Average daily reserve required $ million b-1. What is the average daily balance of reserves held by the bank over the maintenance period? (Enter your answer in millions.) Average daily balance of reserves held $ 9.5 million b-2. By what amount were the average reserves held higher or lower than the required reserves? (Input the amount as a positive value. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) The average reserves were by $ million. c. If the bank had transferred $28 million of its deposits every Friday over the two-week computation period to one of its off-shore facilities, what would be the revised average daily reserve requirement? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) Revised average daily reserve requirements $ million

Answer 1

Under the rules effective in 2013, what is the amount of average daily required reserves to be held at the Fed during the reserve maintenance period for these demand deposit balances? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161))

Average daily reserve required = (0 x $12.4m) + ($79.5 - $12.4) (0.03) + ($235 - $79.5) (0.10)= 0 + $2.013 + $15.55 = $17.563 million

Vault cash = $ 6 million

Hence, Under the rules effective in 2013, what is the amount of average daily required reserves to be held at the Fed during the reserve maintenance period for these demand deposit balances = 17.563 - 6 = $ 11.563 million

b-1. What is the average daily balance of reserves held by the bank over the maintenance period? (Enter your answer in millions.)

Average daily balance of reserves held $ 9.5 million

b-2. By what amount were the average reserves held higher or lower than the required reserves? (Input the amount as a positive value. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161))

The average reserves were lower / short by $ 11.563 - 9.5 = $ 2.063 million.

c. If the bank had transferred $28 million of its deposits every Friday over the two-week computation period to one of its off-shore facilities, what would be the revised average daily reserve requirement? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) Revised average daily reserve requirements $ million

For the 14-day period, the sum of its daily average is = $235 x 14 = $3,290.

If $28 million is transferred on Friday, the total reduction is $140 million over two weekends ($28 x 3 days x 2 weekends), and the total 14-day balance is = 3290 - 140 = $ 3,150 million.

The average daily deposits will be 3,150 / 14 = $ 225 million

Reserve requirements = (0 x $12.4m) + ($79.5- $12.4)(0.03) + ($225 - $79.5) (0.10)= 0 + $2.013 + $14.55 = $16.653 million.

City Bank needs to maintain average reserves at the Fed of $10.653 million ($16.653 million - $6 million) during the maintenance period.Since it had $9.5 million of reserves at the Fed, it has $1.153 million (10.653 - 9.5) short reserves.