The reserve ratio is a crucial aspect of banking that determines how much money a bank must keep on hand compared to its total deposits. In this case, if a bank has a reserve ratio of 10% and total deposits amounting to $2000, we can calculate the reserves using a simple formula.
The formula to calculate reserves is:
Reserves = Total Deposits × Reserve Ratio
Now, substituting the values into the formula:
Reserves = $2000 × 0.10
Carrying out the multiplication:
Reserves = $200
Therefore, the bank’s reserves would amount to $200. This means that out of the $2000 in deposits, the bank is required to keep $200 in reserves, which ensures it has sufficient liquidity to meet withdrawal demands while allowing the remaining funds to be used for lending and investment purposes.