Question

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6. Chase has estimated that its average daily net transaction accounts balance over the recent 14-day reserve computation period was $300 million. The average daily balance with the Fed over the 14-day maintenance period was $8 million, and the average daily balance of vault cash over the two-week computation period was $8.5 million. a. Under the rules effective in 2015, what is the amount of average daily reserves required to be held during the reserve maintenance period for these net transaction accounts balances? b. What is the average daily balance of reserves held by the bank over the maintenance period? By what amount were the average reserves held higher or lower than the required reserves? c. If the bank had transferred $30 million of its deposits every Friday over the two-week computation period to one of its offshore facilities, what would be the revised average daily reserve requirement?

Answer 1

Ans 6 .

Under Rules effective in 2015

Net transaction accounts	Reserve Requirement
$0 to $14.5 million	0%
$14.5 to $103.6 million	3%
> $103.6 million	10%

Here Total Daily Net Transaction account balance $ 300 million

So Average Daily Reserve Required :

( 14.5 ) * 0% + ( 103.6 - 14.5) * 3% + ( 300 - 103.6 ) * 10% = 0 + 2.673 + 19.64 = 22.313

Ans a ) Under the rules effective in 2015, what is the amount of average daily reserves required to be held during the reserve maintenance period for these net transaction accounts balances = $ 22.313 Million

Ans b )

What is the average daily balance of reserves held by the bank over the maintenance period = $ 8 Million (Ans)

average daily balance of vault cash over the two-week computation period was $ 8.5 million.

amount were the average reserves held hlower than the required reserves = 22.313 - ( 8 + 8.5) = $ 5.813  Million (Ans)

Ans c )

For 14 Days Sum of its Net Transaction account balance = 300 * 14 = $ 4200 Million

Bank Transferred 30 Million over next Two Weekends .

Reduction in Transaction account balance = 30 * 3 * 02 ( Three Implies 03 Overnight on weekends for 02 Weeks) = 180 Million

So Updated Sum of its Transaction account balance will be = 4200 - 180 = $ 4020 Million

Average Daily Net Transaction account balance will be = 4020 / 14 = $ 287.14 Million

So Average Daily Reserve Required :

( 14.5 ) * 0% + ( 103.6 - 14.5) * 3% + ( 287.14 - 103.6 ) * 10% = 0 + 2.673 + 18.354 = 21.027

revised average daily reserve requiremen will be $ 21.027 Million (Ans)