In the following bank balance sheet, amounts are in millions of dollars. The required reserve ratio is
Question:
a. Calculate the banks excess reserves.
b. Suppose that the bank sells $5 million in securities to an investor. Show the banks balance sheet after this transaction. Now what are the banks excess reserves?
c. Suppose that the bank loans its excess reserves in part (b) to a local business. Show the banks balance sheet after the loan has been made but before the business has spent the proceeds of the loan. Now what are the banks excess reserves?
d. Suppose that the business spends the amount of the loan by writing a check. Revise the banks balance sheet and calculate its excess reserves after the check has cleared.
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...
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Money, Banking, and the Financial System
ISBN: 978-0134524061
3rd edition
Authors: R. Glenn Hubbard, Anthony Patrick O'Brien
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