The reserve requirement is 5% on the first $200 million and 10% in excess of 200 million. The bank has loans of $200 million which is equivalent to the excess reserves.

1. How much is the excess reserves?

2. If the bank sells securities of $10 million and loans this out, prepare an updated

   balance sheet.

Transaction accounts Capital $ 200 100 Reserves Securities Loans Total Assets $ 25 75 200 $300 Total liabilities & capital $300