2) Calgary Finance Bank has the following balance sheet:AssetsLiabilities$100$1000Chequable DepositsCapital$1000$100ReservesLoansAssume there is no excess reserve. One day Jack luckily finds a bill of $20 underneath his mattressand 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 itsbalance sheet?d) If all commercial banks have the same target reserve ratio as this bank, and there is no cashdrain, what will be the change in total deposits for the whole banking system after the process ofmoney creation is completed?

1. The deposit of $20 bill will decrease chequable deposits and reserves by $20

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?

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

Section: Chapter Questions

Problem 1Q

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