Assume that the reserve requirement is 5% on the first $50 million of deposit accounts and 10%

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Question:

Assume that the reserve requirement is 5% on the first $50 million of deposit accounts and 10% on the excess of these. (“millions of dollars”)

Reserves $ 15.9

Deposits $ 180.0

Loans 150.0

Capital 20.0

Investments 34.1

1- Calculate the bank's excess reserves.

2- Suppose the bank sells $5 million in Investments to improve its liquidity. Show the status after this transaction. Indicate what the bank's excess reserves are.

3- Suppose the bank grants business loans to several customers for $10.4 million. Show the status after this transaction. Analyze the reserve account and explain what considerations the bank treasurer should have.