An FI has estimated the following annual costs for its demand deposits: management cost per

account = $150, average account size = $1400, average number of cheques processed per account

per month = 65, cost of clearing a cheque = $0.10, fees charged to customer per cheque = $0.05 and

average fee charged per customer per month = $10.

(a) What is the implicit interest cost of demand deposits for the FI?

(b) If the FI has to keep an average of 8 per cent of demand deposits as required reserves with the

RBA paying no interest, what is the implicit interest cost of demand deposits for the FI?

(c) What should be the per-cheque fee charged to customers to reduce the implicit interest costs to

3 per cent? Ignore the reserve requirements.