1 Exercise 2 Questions Table 1: Capital Assets Reserves Liabilities Deposits 20 100 Loans 80 Treasury Securities 10 Capital 10 1. Use Table 1. The require reserve ratio is 10%. There is a deposit outflow of 15 million. What is the shortfall in reserves? 2. Use Table 1. The required reserve ratio is 10%. If there is a deposit outflow of 15 million what should the bank do to maintain its reserve requirement? 3. Using the Table 1 above now assume the only way to raise reserves is to sell loans at fifty cents on the dollar. What does the balance sheet look like after the sale of loans? 4. How well capitalized is the bank in Table 1? Use the capital ratio and the 5% threshold. Use original table. 5. Calculate the capital ratio using the risk adjusted weighted assets approach. Assume the weight for loans is 1 and zero for the risk-free assets. Use original Table 1. 6. Now assume in original Table 1 there is $5 of loan losses. What is the new risk adjusted weighted capital ratio