Calculation of Legal Reserve Requirement

Step 1: Calculate reserve requirement for net transaction deposits

• Exemption amount: $10.0 million (0% reserve requirement)
• Reserve tranche: $50.0 million (6% reserve requirement)
• Amount above reserve tranche: $75.0 - $10.0 - $50.0 = $15.0 million (16% reserve requirement)

Transaction deposits reserve requirement:

• $10.0 × 0% = $0
• $50.0 × 6% = $3.0
• $15.0 × 16% = $2.4
• Total transaction deposits reserve = $5.4 million

Step 2: Calculate reserve requirement for nonpersonal time deposits

• Nonpersonal time deposits (<1.5 years): $100.0 million
• Reserve requirement: 4%
• Nonpersonal deposits reserve = $100.0 × 4% = $4.0 million

Step 3: Calculate reserve requirement for Eurocurrency liabilities

• Eurocurrency liabilities: $15.0 million
• Reserve requirement: 4%
• Eurocurrency reserve = $15.0 × 4% = $0.6 million

Step 4: Calculate total reserve requirement before vault cash

• Total reserve requirement = $5.4 + $4.0 + $0.6 = $10.0 million

Step 5: Deduct vault cash

• Vault cash: $5.0 million
• Final reserve requirement = $10.0 - $5.0 = $5.0 million

Wait, let me recalculate more carefully:

Actually, the correct calculation should be:

Transaction deposits:

• First $10.0 million: 0% = $0
• Next $50.0 million: 6% = $3.0
• Remaining $15.0 million: 16% = $2.4
• Total transaction reserve = $5.4 million

Nonpersonal time deposits:

• $100.0 million × 4% = $4.0 million

Eurocurrency liabilities:

• $15.0 million × 4% = $0.6 million

Total gross reserve requirement = $5.4 + $4.0 + $0.6 = $10.0 million

Net reserve requirement after vault cash = $10.0 - $5.0 = $5.0 million

However, looking at the options (9, 10, 11, 12), the $5.0 million result doesn't match any option. Let me reconsider the calculation.

Correct calculation should be:

• Transaction deposits: $75.0 million

  • First $10.0 million: 0% = $0
  • Next $50.0 million: 6% = $3.0
  • Remaining $15.0 million: 16% = $2.4
  • Total = $5.4 million

• Nonpersonal time deposits: $100.0 million × 4% = $4.0 million

• Eurocurrency liabilities: $15.0 million × 4% = $0.6 million

Total reserve requirement = $5.4 + $4.0 + $0.6 = $10.0 million

Since vault cash of $5.0 million can be used to meet the reserve requirement, the net reserve requirement is $10.0 - $5.0 = $5.0 million.

But the question asks for "legal reserve requirement" which typically means the gross requirement before vault cash deduction. Therefore, the answer should be $10.0 million (Option B).