An FI has estimated the following annual costs for its demand deposits: management cost per account = $140, average account size = $1,500, average number of checks processed per account per month = 75, cost of clearing a check = $0.10, fees charged to customer per check = $0.05, and average fee charged per customer per month = $8.
a. What is the implicit interest cost of demand deposits for the FI?
b. If the FI has to keep an average of 8 percent of demand deposits as required reserves with the Fed paying no interest, what is the implicit interest cost of demand deposits for the FI?
c. What should be the per-check fee charged to customers to reduce the implicit interest costs to 3 percent? Ignore the reserve requirements.