Sara deposits $100,000 in Royal Bank and John borrows $80,000 from Royal Bank to buy a car from Oregan car dealer. Oregan car dealer deposits the $80,000 in CIBC. Assume that there is no currency drain and desired reserve ratio is 20%.

1. Reflect the above transactions in T-accounts for both banks

2. The Central Bank noticed that commercial Banks are expanding money supply too much. Would the Central Bank Increase or decrease the desired reserve ratio? Explain

3. At the end of the day the manager of Royal Bank found that they have a surplus amount of $10,000 in the LVTS (Large Value Transfer System), and decided not to touch it. If the target of the overnight rate is 0.25%. How much would Bank of Canada charge/pay to Royal bank?