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:
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Identify the reserve requirement: The reserve requirement is 20%. This means the bank must hold 20% of its cheque deposits as reserves.
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Calculate required reserves: \[ \text{Required Reserves} = \text{Cheque Deposits} \times \text{Reserve Requirement} \] \[ \text{Required Reserves} = R4,000,000 \times 0.20 = R800,000 \]
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Determine excess reserves: Excess reserves are the actual reserves minus the required reserves. \[ \text{Excess Reserves} = \text{Actual Reserves} - \text{Required Reserves} \] \[ \text{Excess Reserves} = R1,000,000 - R800,000 = R200,000 \]
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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.