Question

Questions 28-30

First Bank

Cash on hand= $300

Customer deposits = $3,000
Deposits at the Bank of Canada = $200 Cash on hand = $300
Desired reserve coefficient = 10%

First Bank’s total reserves are
a) $110; b) $200; c) $300; d) $500

What is the maximum dollar value of new loans that First Bank should grant? a) $0; b) $200; c) $400; d) $500

If First Bank was a monopoly bank (it had no competitors in the region and e- banking was not an option), what is the maximum value of loans that First Bank could grant to its customers?
a) $200; b) $500; c) $1,000; d) $2,000

Answer 1

1> Total reserve amount would be the sum of the cash on hand and the deposit at the central bank(Bank of Canada).

So, it is $(200+300)=$500

2> Since the desired rate is 10%, and we can see that it has a cash of $300. So, $3000 should be the deposit, but that is already there. So, it should grant $0

a is correct.

3> If it is a monopoly, the deposit at central bank should also be considered. Thus, total deposit can be $500/10%=$5000

The maximum value would be $5000-$3000=$2000