Question
(a) A bank has the following balance sheet: Assets Liabilities Reserves $75 million Deposits $500 million Loans $525 million Capital $100 million If a depositor
(a) A bank has the following balance sheet: Assets Liabilities Reserves $75 million Deposits $500 million Loans $525 million Capital $100 million If a depositor comes to withdraw $70 million from the bank, show the new balance sheet immediately after the deposit outflow by listing out the new values of the four items of the balance sheet. (4 marks)
4(b) If the required reserve ratio is 20%, what is the additional reserve required? What actions must the bank take to make sure that it meets reserve requirements in a very short time? Show the balance sheet after the bank takes the action by listing out the new values of the four items (and any other new items if there are any) of the balance sheet. (9 marks)
4(c) Now this bank has to write off certain amount of bad debts such that it is falling short of meeting its capital requirements by $2 million. Suggest 3 methods that the bank can rectify the capital situation. (6 marks)
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