Question

A bank borrows $100,000 from the Fed, leaving a $100,000 Treasury bond on deposit with the Fed to serve as collateral for the loan. The discount rate that applies to the loan is 4 percent and the Fed is currently mandating a reserve ratio of 10 percent. How much of the $100,000 borrowed by the bank must it keep as required reserves

Answer 1

A bank borrows \(\$ 100,000\) from the Federal Reserve. No required reserve need to keep from the borrowed amount. Hence the bank keeps as required reserve from \(\$ 100,000\) is zero.