Assume the Bank of Smallville opens its doors to depositors and receives $100,000 incash deposits.a) Prepare a balance sheet for Bank of Smallville based on the above information.b) Assume furthermore that the bank has to abide by a 20% reserve ratio. How muchin excess reserves does the bank hold? Could this bank make a loan in the amountof $90,000? Briefly explain.c) Based on the amount of excess reserves, if the bank makes the loans, show theimmediate impact on the Bank of Smallville's balance sheet.d) Calculate value of the money multiplier?e) How much money would be created in the banking system if other banks also lendas much as possible?Part Ba) What is meant by the term "excess supply of money?" How does the money marketresolve this disequilibrium?b) Explain with diagrams, what happens to the money supply, interest rates,investment spending and GDP when the central bank makes open market purchases.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Assume that Bank M is the only commercial bank in the country with zero excess reserve and its legal cash requirement is 12%. Suppose that a customer, Mr. S, deposits RM5000 in the Bank M. a) Construct a balance sheet for Bank M b) Calculate the total deposits. c) Calculate the total reserves d) Calculate the total loans created
A bank has the following balance sheet. It expects a net deposit drain of $500,000. Assets Liabilities and Equity Cash $300,000 Deposits $3,115,000 Loans 2,000,000 Equity 385,000 Securities 1,200,000 Total Asset $3,500,000 Total Liabilities and Equity $3,500,000 What is a net deposit drain and why is it of concern for the bank? Show the bank’s balance sheet if it uses stored liquidity to offset the expected drain.
If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $80,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is A) $50,000. B) $40,000. C) $30,000. D) $25,000. Answer: A How to solve it?
a) Bank A has the following balance sheet (in millions): Assets Cash Securities Loans Total assets $70 The bank is expecting a $12 million net deposit drain. Liabilities and equity Deposits Equity Total liabilities and equity $5 10 55 $62 9 $70 ii) Show the new balance sheet if the bank uses stored liquidity management to offset the expected drain. Also, explain the effect on the size and composition of assets and liabilities.
A bank starts with $200 in deposits. The required reserve ratio is 10%. The bank loans out 70% of all non-required deposits and invests the rest in short-term securities. The bank capital is $15. a) Draw up a T-account for the above bank. List all assets and liabilities(+equity) in Ș. b) How much money can be withdrawn from this bank before it requires external help to avoid failure? Try and exhaust all internal measures before declaring panic. c) Would a bank want to reach the point you found in b) before asking for help? Why or why not? Prohlem 3
Suppose you deposit $100 in a bank, which of the following will occur A The bank's assets will increase by $100 B The bank's liabilities will increase by $200 C The bank's liabilities will decrease by $100 D The bank's reserves will increase by $200
a) Bank A has the following balance sheet (in millions): Assets Cash Securities Loans Total assets $5 10 55 $70 Liabilities and equity Deposits Equity Total liabilities and equity The bank is expecting a $12 million net deposit drain. $62 8 $70 i) Show the new balance sheet if the bank uses purchased liquidity management to offset the expected drain. Also, explain the effect on the size and composition of assets and liabilities ii) Show the new balance sheet if the bank uses stored liquidity management to offset the expected drain. Also, explain the effect on the size and composition of assets and liabilities.
Suppose ABC Bank has the following balance sheet items: checkable deposit received of $525 million, bank capital of $100 million, mortgage loans made of $500 million, and securities purchased of $50 million. Does ABC Bank still meet its reserve requirement? Why or why not? If not, what options are available to the bank to keep it from failing?
The bank that you own has the following balance sheet: Assets Liabilities $ 60 million Deposits $120 million Bank capital $420 million Reserves $500 million $100 million Securities Loans a) Record a bookkeeping immediately after the bank suffers a deposit outflow of $50 million when a required reserve ratio on deposits is 10%. What problem do you see on the T-account after the event? Assets Liabilities Reserves Deposits Bank capital Securities Loans b) What action(s) you want to take to rectify the situation? Make your suggestion(s) in terms of the T-account and explain them. Assets Liabilities
Bank A just received total deposit equal to $30,700,000.00. Required reserve ratio for the banking system is set at 2.1%, (or 0.021). a. How much of the total deposit can bank A lend out? In other words, what is bank A's excess reserve? $ b. By how much will total money supply change if bank A, and all subsequent banks, are able to lend out their entire excess reserves as the result of the initial $30,700,000.00 deposit in bank A? $
Consider a failing bank. If the FDIC uses the payoff method a deposit of $330,000 is worth a minimum of $enter your response here. (Round your response to the nearest whole number.)
Normanby Bank has the following balance sheet. Assets ($ million) Liabilities and equity ($ million) Treasury notes 85 Deposits 125 Loans 115 Interbank funds 55 Equity 20 Total assets 200 Total liabilities and equity 200 One of Normanby Bank’s wholesale customers decides to make an immediate deposit withdrawal of $15 million. To fund this withdrawal request, the bank adopts a liability liquidity management approach via the interbank funds market. Which of the following statements is CORRECT? Select one: a. After the transactions, the bank has 140m in deposits, 40m in interbank funds, and total assets remain unchanged. b. After the transactions, the bank has 110m in deposits, 40m in interbank funds, and 170m in total assets. c. After the transactions, the bank has 125m in deposits, 70m in interbank funds, and 215m in total assets. d. After the transactions, the bank has 110m in deposits,…

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