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Explanation:
To calculate the Daily Average Reserve holdings at the Federal Reserve Bank, we must first compute the total reserve requirement based on the given hypothetical rates.
1. Net transaction accounts ($75.0 million):
$0 to $10.0 million): $10.0m × 0% = $0.0 million$10.0m to $50.0m): ($50.0m - $10.0m) × 6.0% = $40.0m × 6.0% = $2.4 million$50.0m): ($75.0m - $50.0m) × 16.0% = $25.0m × 16.0% = $4.0 million$0.0m + $2.4m + $4.0m = $6.4 million2. Nonpersonal time deposits (< 1.5 years) ($100.0 million):
$100.0m × 4.0% = $4.0 million3. Eurocurrency liabilities ($15.0 million):
$15.0m × 4.0% = $0.6 million4. Total Reserve Requirement:
$6.4m + $4.0m + $0.6m = $11.0 million5. Daily Average Reserve holdings at FRB: Banks meet their reserve requirement through vault cash and balances held at the FRB.
$11.0 million - $5.0 million = $6.0 millionTherefore, option A is correct.
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20.7.2. Acme Bank and Trust has below calculated its daily average deposits and vault cash holdings (ie, $5.0 million) for the most recent two-week computation period. Also shown are decidedly hypothetical (ie, not necessarily realistic) reserve requirements posted by the Federal Reserve System:
Million of dollars
Net transaction deposits $75.0
Nonpersonal time deposits (< 1.5 years) $100.0
Eurocurrency liabilities $15.0
Daily average balance in vault cash $5.0
Reserve Requirements:
Net transaction accounts:
Exemption amount to reserve tranche 6.0%
More than reserve tranche 16.0%
Reserve tranche $50.0
Exemption amount $10.0
Nonpersonal time deposits:
Less than 18 months 4.0%
18 months or more 0.0%
Eurocurrency liabilities—all types 4.0%
What is the bank's Daily Average Reserve holdings at the Federal Reserve bank (FRB)?
A
a) $6.0 million
B
b) $9.5 million
C
c) $12.5 million
D
d) $23.0 million