National Bank Ltd. currently has Rs 25,000 million in transaction deposits on its balance sheet. Current reserve requirement set by Nepal Rastra Bank…
BBS Management of Financial Institutions · 2081 · Solved Question with Answer
National Bank Ltd. currently has Rs 25,000 million in transaction deposits on its balance sheet. Current reserve requirement set by Nepal Rastra Bank is 4 percent. Suppose Nepal Rastra Bank decreases the reserve requirement from 4 percent to 3 percent. For simplicity suppose that National Bank Ltd. holds all of its reserve at Nepal Rastra Bank and it does not have any vault cash.
a. How much National Bank Ltd. does hold the reserve at Nepal Rastra Bank to back up its deposits before decrease in reserve ratio?
b. How much National Bank Ltd. does hold the reserve at Nepal Rastra Bank to back up its deposits after decrease the reserve ratio from 4 percent to 3 percent?
c. How much National Bank Ltd. will have the excess reserve after change made by Nepal Rastra Bank in the reserve ratio?
d. What will be the resulting change in the deposits of National Bank Ltd. after lowering the reserve ratio?