Tuesday Wednesday Thursday Friday 11th 12th 13th 14th $500 $ 450 $ 480 $ 460 EXAMPLE 13-2 Computation of Daily Average Required Reserves Consider ABC Bank's reserve manager, who wants to assess the bank's minimum cash reserve requirement target. The manager knows the bank's net transaction accounts bal- ance at the close of the banking day on each of the 14 days over the period Tuesday, June 30, to Monday, July 13. Consider the realized net transaction account positions of ABC Bank in Table 13-25. Net transaction accounts The average daily reserves at the Fed for the 14-day reserve maintenance period have been $43.5 million per day, and the average vault cash for the computation period has been estimated to be $1 million per day. The minimum daily average reserves that a bank must maintain is computed as a percentage of the daily average net transaction accounts held by the bank over the two-week computation period, where Friday's balances are carried over for Saturday and Sunday. The minimum daily average for ABC Bank to hold against the daily average of $1,350.70 million in net transaction accounts is calculated as follows (amounts in millions): Daily average net transaction accounts x Reserve percentage = Daily average reserves required $15.2 $110.2-$15.2 $1,350.7-$110.2 0% $ 0.000 3 2.850 124.050 10 Minimum average reserves to be held $126.900 monis). Monday Tuesday Wednesday Thursday Friday 20th $ 460 17th $480 18th $ 500 19th $ 470 21th $ 450 a. What is the amount of the average daily required reserves to be held by the bank during the maintenance period? b. Is the bank in compliance with the requirements? Monday 24th $ 440
Tuesday Wednesday Thursday Friday 11th 12th 13th 14th $500 $ 450 $ 480 $ 460 EXAMPLE 13-2 Computation of Daily Average Required Reserves Consider ABC Bank's reserve manager, who wants to assess the bank's minimum cash reserve requirement target. The manager knows the bank's net transaction accounts bal- ance at the close of the banking day on each of the 14 days over the period Tuesday, June 30, to Monday, July 13. Consider the realized net transaction account positions of ABC Bank in Table 13-25. Net transaction accounts The average daily reserves at the Fed for the 14-day reserve maintenance period have been $43.5 million per day, and the average vault cash for the computation period has been estimated to be $1 million per day. The minimum daily average reserves that a bank must maintain is computed as a percentage of the daily average net transaction accounts held by the bank over the two-week computation period, where Friday's balances are carried over for Saturday and Sunday. The minimum daily average for ABC Bank to hold against the daily average of $1,350.70 million in net transaction accounts is calculated as follows (amounts in millions): Daily average net transaction accounts x Reserve percentage = Daily average reserves required $15.2 $110.2-$15.2 $1,350.7-$110.2 0% $ 0.000 3 2.850 124.050 10 Minimum average reserves to be held $126.900 monis). Monday Tuesday Wednesday Thursday Friday 20th $ 460 17th $480 18th $ 500 19th $ 470 21th $ 450 a. What is the amount of the average daily required reserves to be held by the bank during the maintenance period? b. Is the bank in compliance with the requirements? Monday 24th $ 440
Chapter15: Monetary Theory And Policy
Section: Chapter Questions
Problem 1.1P
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Transcribed Image Text:The following net transaction accounts have been documented by a bank for the computation of its reserve requirements (in millions).
Tuesday Wednesday Thursday
11th
12th
13th
$ 500
$ 450 $ 480
Friday
14th
$ 460
Monday Tuesday Wednesday Thursday Friday
21th
$ 450
17th
$ 480
18th
$500
19th
$ 470
20th
$ 460
Net transaction accounts
The average daily reserves at the Fed for the 14-day reserve maintenance period have been $43.5 million per day, and the average
vault cash for the computation period has been estimated to be $1 million per day.
EXAMPLE 13-2 Computation of Daily Average Required Reserves
Consider ABC Bank's reserve manager, who wants to assess the bank's minimum cash
reserve requirement target. The manager knows the bank's net transaction accounts bal-
ance at the close of the banking day on each of the 14 days over the period Tuesday,
June 30, to Monday, July 13. Consider the realized net transaction account positions of
ABC Bank in Table 13-25.
The minimum daily average reserves that a bank must maintain is computed as a
percentage of the daily average net transaction accounts held by the bank over the two-week
computation period, where Friday's balances are carried over for Saturday and Sunday. The
minimum daily average for ABC Bank to hold against the daily average of $1,350.70 million
in net transaction accounts is calculated as follows (amounts in millions):
Daily average net
transaction accounts x Reserve percentage = Daily average reserves required
$15.2
$110.2-$15.2
$1,350.7-$110.2
0%
3
$ 0.000
2.850
124.050
10
Minimum average reserves to be held $126.900
a. What is the amount of the average daily required reserves to be held by the bank during the maintenance period?
b. Is the bank in compliance with the requirements?
Monday
24th
$ 440
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