Question

Suppose the reserve requirement is 20 percent. If a bank has cheque deposits of R4 million and actual reserves of R1 million, it can safely lend out:

Answer 1

To determine how much a bank can safely lend out given its cheque deposits, actual reserves, and the reserve requirement, we can follow these steps:

1. **Identify the reserve requirement**: The reserve requirement is 20%. This means the bank must hold 20% of its cheque deposits as reserves.

2. **Calculate required reserves**:
\[
\text{Required Reserves} = \text{Cheque Deposits} \times \text{Reserve Requirement}
\]
\[
\text{Required Reserves} = R4,000,000 \times 0.20 = R800,000
\]

3. **Determine excess reserves**: Excess reserves are the actual reserves minus the required reserves.
\[
\text{Excess Reserves} = \text{Actual Reserves} - \text{Required Reserves}
\]
\[
\text{Excess Reserves} = R1,000,000 - R800,000 = R200,000
\]

4. **Safe amount for lending**: The bank can lend out its excess reserves.
\[
\text{Amount that can be safely lent out} = \text{Excess Reserves} = R200,000
\]

Thus, the bank can safely lend out **R200,000**.