Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of

Question:

Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits.

a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received.

b. Assume Bank A makes a loan in the amount that can be “safely lent.” Show what the bank’s balance sheet of assets and liabilities would look like immediately after the loan.

c. Assume that a check in the amount of the “derivative deposit” created in Part b was written and sent to another bank. Show what Bank A’s (the lending bank’s) balance sheet of assets and liabilities would look like after the check is written.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...