Domino bank has cash and short term securities of 50m . Domina has loans outstanding in the amount of 41. Assume the reserve requirement is 15%. If Domino sell 2 million worth of their short term US securites to the Federal Reserve, Then Domino would be albe to make addition loans of ??? I have no clue to caculate this kind of problem. Can somboday provide me with a detailed bank financial statement?
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is it 3.2M? The bank has deposits and short term securities of 50M. Of these 50M, only 15% should be kept in reserves, that is 15%*50=7.5M. The bank extended 41M, so it has 50-41=9M in reserves. Could extend 9-7.5=1.5M more. Then, the bank sells 2M in short term securities, of which 15% must be kept in reserves, so the bank can lend (1-.15)*2M=1.7M more Add these together, for a total of 3.2M.
I believe it only ask about aditional loans. So it must be 1,7 mio IMHO. Miha
map1 Wrote: ------------------------------------------------------- > is it 3.2M? > > The bank has deposits and short term securities of > 50M. Of these 50M, only 15% should be kept in > reserves, that is 15%*50=7.5M. The bank extended > 41M, so it has 50-41=9M in reserves. Could extend > 9-7.5=1.5M more. > > Then, the bank sells 2M in short term securities, > of which 15% must be kept in reserves, so the bank > can lend (1-.15)*2M=1.7M more > > Add these together, for a total of 3.2M. 1.7 is the correct one
TheAliMan Wrote: ------------------------------------------------------- > http://www.analystforum.com/phorums/read.php?11,85 > 7224,857224#msg-857224 still confuse Could u caculate the bank’s exist reserve based on this? its excess reserve? without 2 million?
If the bank has 50M in deposits, a part of it is required to keep in reserves (15%) and the rest can be lent out. So they must keep in reserves 7.5M (50M*0.15) and can lend 50-7.5=42.5M Out of the 42.5M, they already lent 41M, that means they have excess reserves (money they did not lend, although they could) of 42.5-41=1.5M. Is this answering your question?
map1 Wrote: ------------------------------------------------------- > If the bank has 50M in deposits, a part of it is > required to keep in reserves (15%) and the rest > can be lent out. So they must keep in reserves > 7.5M (50M*0.15) and can lend 50-7.5=42.5M > > Out of the 42.5M, they already lent 41M, that > means they have excess reserves (money they did > not lend, although they could) of 42.5-41=1.5M. > > Is this answering your question? but , if this is true, the answer should be 3.2
True. That’s why my solution was 3.2. Could it be that the question asks only how much more could be lent only out of the 2M?
map1 Wrote: ------------------------------------------------------- > True. That’s why my solution was 3.2. > > Could it be that the question asks only how much > more could be lent only out of the 2M? http://www.analystforum.com/phorums/read.php?11,857224,857224#msg-857224 Look at this. These two questions confuse me a lot.
That’s a totally different scenario. In that case, the bank has 400 in demand deposits, here Domino has only 50. There they say how much the bank has in deposits with the Federal reserve (50) here they say nothing, here you have to calculate the reserve (15%*50). There they raise no money from the market, here they get 2M. There they were required to have only 40M in the Federal Reserve, and had 50, hence could lent 10M more. Here, not only they have excess reserves of 1.5M, they also get some money in (of which only a part can be lent). Of course, I might be totally off. What were the alternative answers?