CE 01-10(B)

The balance sheet of a banking system is as follows:

(i) Given that the legal reserve ratio is 20%, calculate the actual reserve ratio and the amount of excess reserve of the banking system. (4 marks)

(ii) A depositor withdraws $40m from the banking system and invests the money overseas. If all banks lend out their remaining excess reserves, what is the maximum possible amount of total deposits in the banking system? Explain your answer. (4 marks)