Assignment: A financial intermediation has estimated the following annual costs for its demand deposits: management cost per account = $140, average account size = $1,500, average number of checks processed per account per month = 75, cost of clearing a check = $0.10, fees charged to customer per check = $0.05, and average fee charged per customer per month = $8
Question 1: What is the implicit cost of demand deposits for the financial intermediation?
Question 2: If the financial intermediation has to keep an average of 8% of demand deposits as required reserves with the Fed, what is the implicit interest cost of demand deposits for the financial intermediation?
Question 3: What should be the check clearing fees to reduce the implicit interest cost to 3%? Ignore the reserve requirements.