Question
The average daily net transaction accounts deposit balance of CCNB bank during the most recent reserve computation period is $650 million. The amount of average
The average daily net transaction accounts deposit balance of CCNB bank during the most recent reserve computation period is $650 million. The amount of average daily reserves at the Fed during the reserve maintenance period is $50 million and the average daily vault cash corresponding to the maintenance period is $10 million. Assume the minimum cash reserve requirement against the net transaction accounts are: Net transaction accounts (million) Reserve requirement (%) < $32 0 32- 250 3 > 250 10 If overshooting, a maximum of 4 percent of the gross required reserves can be carried over to the next maintenance period. If undershooting by more than 4%, a penalty equal to the central banks discount rate plus 2% is applied. Required:
a. What is the average daily reserve balance required to be held by the bank during the maintenance period?
b. Is the bank in compliance with the reserve requirements and how much fund can be carried over to next period or penalized?
c. If the bank has an opportunity cost of 7 percent and deposits at the Central Bank pay 3 percent, what is the effect on the income statement from this reserve period?
d. If the bank had transferred $40 million of its deposits every Friday over the two-week computation period to one of its offshore facilities, what would be the revised average daily reserve requirement?
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