Question

A bank is required to maintain an average daily balance at the Fed of $700 million. On the first day of the maintenance period it maintains a balance of $750 million, the next two days it maintains a balance of $725 million, the next three days it maintains a balance of $625 million, the next three days it maintains a balance of $775 million, the next two days it maintains a balance of $700 million, and the next two days it maintains a balance of $650 million. What does its balance at the Fed has to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit? $700 million $650 million $750 million $325 million None of the options is correct

Answer 1

Solution Day 1 2 Balance Product 750 750 725 1450 625 1875 775 2325 1400 650 1300 9100 700 13 where, Product = Number of days X Balance maintained for those days Particulars Maintainance required for 14 days in term of product (14 X 700) Less: Balance Maintained for 13 day in term of product Balance required on last day Amount ($ Million) 9800 9100 700 Hence, Option C $700 Million is correct