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1. Suppose you were the manager of a bank with the following balance sheet. Bank Balance Sheet (in millions) Assets Liabilities I Reserves $30 Transactions
1. Suppose you were the manager of a bank with the following balance sheet. Bank Balance Sheet (in millions) Assets Liabilities I Reserves $30 Transactions Deposits $200 Loans $820 Nontransactions Deposits $600 Securities $150 Borrowings $100 You are required to hold 10% of transaction deposits as reserves. If you were faced with unexpected withdrawals of $30 million from transaction deposits, under each of the following circumstance, what would you do to solve the bank's liquidity risk? Show what the new bank's balance sheet look like for each of the following situation. a. Bank sells its securities to meet the reserve requirement. b. Bank borrows money from other commercial bank to meet the reserve requirement. Bank reduces loans to meet the reserve requirement. d. Bank borrows money from the Fed to meet the reserve requirement. c
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