An FI has estimated the following annual costs for its demand deposits 1 answer below »

An FI 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.

a. What is the implicit interest cost of demand deposits for the FI?

b. If the FI has to keep an average of 8 percent of demand deposits as required reserves with the Fed, what is the implicit interest cost of demand deposits for the FI?

c. What should be the per-check fee charged to customers to reduce the implicit interest cost to 3 percent? Ignore the reserve requirements.