Suppose the required reserve ratio for the banking system is 25%. Answer the following questions based on

Question:

Suppose the required reserve ratio for the banking system is 25%. Answer the following questions based on the balance sheet of Lafayette Bank:

Lafayette Bank

Assets Liabilities

Cash in the vault 60,000

Deposits 500,000

Deposits at the central bank 100,000

Borrowing from the central bank 70,000

Loans 800,000

Borrowing from other banks 400,000

Securities 100,000

Other liabilities 100,000

Other 30,000

Stockholders’ equity 20,000

a. Calculate the level of excess reserves for Lafayette Bank.

b. Determine the largest amount of a deposit outflow this bank could handle without having to acquire more funds.

c. Explain the options for acquiring more funds in the short-run. Be sure to evaluate each on a “costs” basis.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...