Topic: Federal Reserve and the Central Bank Question : What is the difference between illiquid banks and insolvent banks? How does that difference affect the lender-of-last-

A bank run can bankrupt a healthy bank because of all of the following EXCEPT which one? Bank will suffer a huge loss when it is forced to sell its non-cash assets in a short time period. Bank's cash in the vault is only a fraction of its total deposits. This bank has a lot of non-performing loans. On average bank's liabilities are always more liquid than its assets.

Question 12 The federal funds rate is the interest rate at which: prominent companies borrow from banks. banks borrow funds directly from the Federal Reserve. banks borrow from other banks with excess reserves. households' savings are invested in the Federal Reserve.

QUESTION 23 LAST CHANCE BANK OF TOMBSTONE --- BALANCE SHET ASSETS LIABILITIES & NET WORTH demand deposits: $5,000,000 cash in the vault: deposits at Fed US treasury bonds: $900,000 $100,000 $300,000 $3,700,000 $2,000,000 loans: Building: capital stock: $2,000,000 TOTALS: $7,000,000 TOTALS: $7,000,000 23. Assume: a required reserve ratio of 20%, banks do not wish to hold excess reserves and the public does not wish to increase its cash holdings. Now assume this bank has just received an additional $100,000 in cash as a loan from another bank, such that the cash it will hold in its vault will increase to $1,000,000. What is the maximum amount of new money the banking system can create? $900,000 $400,000 $500,000 $1,000,000 $4,000,000