Question

Suppose your bank has the following balance sheet:

If the required reserve ratio is $10\%$, what actions should the bank manager take if there is an unexpected deposit outflow of $\$50$million?

Short answer

The bank will have a reserve deficiency of $15 million as a result of the deposit outflow.

Step-by-step solution

Content Introduction

A bank's monetary record is a depiction of its funds at one point on schedule, and addresses exercises like making advances to families, organizations and, taking stores. Assets, Liabilities and Equity are the three fundamental parts to a monetary record .

Content Explanation

Attempts might be made to get in the Federal Funds market, take out a markdown advance from the Federal Reserve, sell $\$15$million of the protections the bank possesses, auction $\$15$million of the protection the bank claims, or ultimately bring in $\$15$million of advances or loans. Every one of the activities will be costly to the bank. The bank director should attempt to secure the assets with the most inexpensive technique.