2) Calgary Finance Bank has the following balance sheet: Liabilities Chequable Deposits Capital Assets Reserves Loans $100 $1000 $1000 $100 Assume there is no excess reserve. One day Jack luckily finds a bill of $20 underneath his mattress and he deposits it into this bank. a) Describe how this deposit may affect Calgary Finance Bank's balance sheet. b) What willI be the excess reserve now? c) To keep reserve ratio at target level, what would this bank do? How would the action affect its balance sheet? d) if all commercial banks have the same target reserve ratio as this bank, and there is no cash drain, what will be the change in total deposits for the whole banking system after the process of money creation is completed?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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2) Calgary Finance Bank has the following balance sheet:
Assets
Liabilities
$100
$1000
Chequable Deposits
Capital
$1000
$100
Reserves
Loans
Assume there is no excess reserve. One day Jack luckily finds a bill of $20 underneath his mattress
and he deposits it into this bank.
a) Describe how this deposit may affect Calgary Finance Bank's balance sheet.
b) What will be the excess reserve now?
c) To keep reserve ratio at target level, what would this bank do? How would the action affect its
balance sheet?
d) If all commercial banks have the same target reserve ratio as this bank, and there is no cash
drain, what will be the change in total deposits for the whole banking system after the process of
money creation is completed?
Transcribed Image Text:2) Calgary Finance Bank has the following balance sheet: Assets Liabilities $100 $1000 Chequable Deposits Capital $1000 $100 Reserves Loans Assume there is no excess reserve. One day Jack luckily finds a bill of $20 underneath his mattress and he deposits it into this bank. a) Describe how this deposit may affect Calgary Finance Bank's balance sheet. b) What will be the excess reserve now? c) To keep reserve ratio at target level, what would this bank do? How would the action affect its balance sheet? d) If all commercial banks have the same target reserve ratio as this bank, and there is no cash drain, what will be the change in total deposits for the whole banking system after the process of money creation is completed?
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