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The attached table shows the balance sheet for the Regal Bank, a hypothetical commercial bank. Assume that the Regal Bank has achieved its target reserve ratio.

a) What is the Regal Bank's target reserve ratio?
b) What is the value of the owners' investment in the bank?
c) Suppose someone makes a new deposit to the Regal Bank of $100. Draw a new balance sheet showing the immediate effect of the new deposit.
d) Suppose instead that someone withdraws $100 cash from the Regal Bank. Show the new balance sheet and the new reserve ratio.

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The target reserve ratio in this scenario is assessed.

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Question 4
a.     If the Regal Bank is currently at its target reserve ratio, then the target ratio is given by the ratio of actual reserves to actual deposits. This is $200/$4,000 = 0.05, or 5 percent.

b.     The value of the owners' investment in the bank is the capital shown on ...

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