Assume that banks must hold a 2 percent reserve percentage a

Assume that banks must hold a 2 percent reserve percentage against transaction account balances up to and including $40 million. For transaction accounts above $40 million, the required reserve percentage is 8 percent. Also assume that Dell National Bank has transaction account balances of $200 million. a. Calculate the dollar amount of required reserves that Dell National Bank must hold. b. What percentage of Dell’s total transaction account balance must be held in the form of required reserves?

Solution

a)

Dollar amount of required reserves that Dell National Bank must hold :

= 40 * .02 + (Transaction account - 40)*.08 = 40 * .02 + (200 - 40)*.08

= 13.6 Million

b)

percentage of Dell’s total transaction account balance must be held in the form of required reserves:

= $ amount of required reserves / Transaction accoun balnce

= $13.6 million / $200 million

= 6.8%