2. Euro-dollar (40 points) Read the 1971 Milton Friedman paper Euro-Dollar Market First Principles posted on HuskyCT. Suppose company Trumpy holds a US dollar checking account with Chase NY in the US; Trumpy also holds a US dollar checking account with HSBC Hong Kong office in Hong Kong China. Use the following Euro-dollar flow template and describe the detailed balance sheet journal entries for all the participants (Federal Reserve, Chase NY, HSBC NY head office, HSBC HK office, Trumpy's local account in Hong Kong) under the following two scenarios: 1). Trumpy tries to move $10 from US to Hong Kong, by writing a check of $10 to itself in the US and bring the check to Hong Kong. Trumpy then deposits the check with HSBC HK office. 2). Trumpy tries to move $10 from Hong Kong back to US, by writing a check of $10 to itself in Hong Kong and bring the check to US. Trumpy then deposits the check with Chase NY office. Note: please feel free to change the entries of the Euro-dollar flow template or use your own template. The following template is for illustration purpose only. Remember: banks create money as they create loans (out of nothing), but settle interbank payments using Fed's reserves (MB) Assets Reserve with Fed Federal Reserve Assets Liablities Treasury securities Mortgage-backed securities (64%)$ in circulation (MO) (31%) Reverse repo (26%) (30%) TGA (8%) Reserve balances (34%) HSBC NY Chase NY 95% Total Liability 97% Total Asset Send Orders to Transfer Reverses HSBC NY Head Office Chase NY Liablities Assets Deposit from HSBC HK Office Reserve with Fed HSBC HK Office Assets Liablities Deposit at HSBC NY Head Office Loan to Trumpy (IOU) Deposit at HSBC NY Head Office quity Deposit to Trumpy (Euros) Deposit Trumpy (Euro) Trumpy's HK Local Account Assets Liablities Deposit at HSBC HK Office Deposit (check to itself) Eguley Equity Liablities Deposit from Trumpy US (MB, M1, M2,) Overseas (Euro-dollar)