The Gator Nation Bank (GNB) has $600 in deposits. The discount rate is 4%; the Federal funds rate is 5%; and the required reserve ratio is 15%. What is the maximum amount of funds GNB can loan out?
Loan out refers tot he amount which the company is able to give it as a loan and earn interest. The company will charge an interest rate through which it will earn money.
Answer and Explanation:
The required reserve ratio is 15% which implies that the bank holds 15% of its deposit as a reserve rather than lend out. Therefore the bank must keep $15 out of $100 deposit. Thus Bank's total reserve is equal to
Therefore bank must keep $90 and maximum (600-90)=$510 dollar can lend out.
Hence the correct answer is
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Learn more about this topic:
from Introduction to Business: Homework Help ResourceChapter 25 / Lesson 29