Suppose the ABC bank has excess reserves of R4, 000 and outstanding cheque deposits of R80, 000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?

Answer 1

To determine the size of ABC Bank's actual reserves, we can use the following formula:

\[ \text{Actual Reserves} = \text{Required Reserves} + \text{Excess Reserves} \]

First, we need to calculate the required reserves:

• The reserve requirement is 25% of the outstanding cheque deposits.

Given that the outstanding cheque deposits are R80,000:

\[ \text{Required Reserves} = \text{Reserve Requirement} \times \text{Outstanding Cheque Deposits} \] \[ \text{Required Reserves} = 0.25 \times R80,000 = R20,000 \]

Now we can find the actual reserves:

Using the earlier formula:

• Excess Reserves = R4,000

So, we can substitute:

\[ \text{Actual Reserves} = R20,000 + R4,000 = R24,000 \]

Therefore, the size of the bank's actual reserves is R24,000.