Assume that the balance sheet of a bank in your assigned country as below: Reserves Loans Assets $5,000 $45,000 Deposits Capital Liabilities $40,000 $10,000 a. If the required reserve ratio is 3 percent, then how much does this bank has excess reserves? b. Suppose a bank purchases $1,500 of government securities using funds from reserves. How much do bank assets change as a result of this transaction? Show the change in in the balance sheet above. How much does Money Supply change due to this transaction? c. Calculate the bank's leverage ratio. What is the maximum decrease (in %) in the market value of assets before the bank becomes insolvent?
Assume that the balance sheet of a bank in your assigned country as below: Reserves Loans Assets $5,000 $45,000 Deposits Capital Liabilities $40,000 $10,000 a. If the required reserve ratio is 3 percent, then how much does this bank has excess reserves? b. Suppose a bank purchases $1,500 of government securities using funds from reserves. How much do bank assets change as a result of this transaction? Show the change in in the balance sheet above. How much does Money Supply change due to this transaction? c. Calculate the bank's leverage ratio. What is the maximum decrease (in %) in the market value of assets before the bank becomes insolvent?
Chapter25: Money Creation
Section: Chapter Questions
Problem 9SQP
Related questions
Question
Assume that the balance sheet of a bank in your assigned country as below:
Assets Liabilities
Reserves $5,000 Deposits $40,000
Loans $45,000 Capital $10,000
a. If the
reserves?
b. Suppose a bank purchases $1,500 of government securities using funds from reserves.
How much do bank assets change as a result of this transaction? Show the change in
the balance sheet above. How much does Money Supply change due to this transaction?
c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the market
value of assets before the bank becomes insolvent?
Transcribed Image Text:Assume that the balance sheet of a bank in your assigned country as below:
Reserves
Loans
Assets
$5,000
$45,000
Deposits
Capital
Liabilities
$40,000
$10,000
a.
If the required reserve ratio is 3 percent, then how much does this bank has excess
reserves?
b. Suppose a bank purchases $1,500 of government securities using funds from reserves.
How much do bank assets change as a result of this transaction? Show the change in in
the balance sheet above. How much does Money Supply change due to this transaction?
c. Calculate the bank's leverage ratio. What is the maximum decrease (in %) in the market
value of assets before the bank becomes insolvent?
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning