Question

The central bank sets a reserve requirement of 65%. A commercial bank receives a deposit of R29433. Calculate the excess reserves, as a result of this deposit at the commercial bank

Answer 1

To calculate the excess reserves for the commercial bank after it receives a deposit of R29,433 with a reserve requirement of 65%, we can follow these steps:

1. **Calculate Required Reserves**: This is the portion of the deposit that the bank must hold as reserves, which is determined by the reserve requirement.

\[
\text{Required Reserves} = \text{Deposit} \times \text{Reserve Requirement}
\]

Plugging in the numbers:

\[
\text{Required Reserves} = 29,433 \times 0.65 = 19,144.45
\]

2. **Calculate Total Reserves**: The total reserves of the bank after the deposit is the full amount of the deposit since it has to keep part of it as required reserves.

\[
\text{Total Reserves} = \text{Deposit} = R29,433
\]

3. **Calculate Excess Reserves**: The excess reserves are the total reserves minus the required reserves.

\[
\text{Excess Reserves} = \text{Total Reserves} - \text{Required Reserves}
\]

Plugging in the numbers we calculated:

\[
\text{Excess Reserves} = 29,433 - 19,144.45 = 10,288.55
\]

Thus, the excess reserves resulting from the deposit of R29,433 at the commercial bank is **R10,288.55**.