A Bank has $100 million in capital, and $900 million of checkable deposit. The bank currently maintains a total reserve of $100 million dollars, $200 million in T-bills, and rest in loans. A new corporate customer opens a checkable deposit account, and deposit $100 million.

1a. Please show the T-Account of the bank after the deposit?

1b. If the required reserve ratio is 10%, what is likely to happen?

1c. If the required rate for reserves increase to 11%, what should the bank do? How much can the bank lend out after the adjustment? Assume the bank want to maximize return.

1d. What is the equity multiplier?

1e. If the bank collects an average interest of 7.8% on their loan, and T-bill yield 1.44% return. What is the Return on Equity (ROE)? (Assume the profit margin is 8%)

1f. Suppose there is a reserve outflow of $ 20 million, and the reserve ratio is 11% for the bank. Assume the bank decides to borrow from the Fed to meet reserve requirement. How much they will borrow? Please also show the new the T-account.

NEED HELP WITH 1D, 1E, 1F

ANSWERS FOR 1A,1B,1C ARE BELOW

E Liabilities 1 Assets 100.00 checkable deposit $ 900.00 2 required reserve $ $ capital $ 100.00 3 excess reserves $ loans 4 700.00 5 t-bills $ 200.00 $ 1,000.00 $1,000.00 6 A before depost of $100 m 7 8 Liabilities 9 Assets 100.00 checkable deposit $ 1,000.00 $ 10 required reserve $ $ 100.00 apital 11 excess reserves 12 loans $ 800.00 13 t-bills $ 200.00 $ 1,100.00 $1,100.00 14 15 1A ^ after new depost of $100 million 16 17 Assets Liabilities checkable de $ 1,000.00 $ 100.00 100.00 (10% of 1000) 18 required reserve $ $ 19 excess reserves apital 20 loans 21 t-bills $ 800.00 $ 200.00 $ 1,100.00 $ 1,100.00 22 23 1B answer 24 25 Assets 26 required reserve Liabilities 110.00 (11% of 1000) checkable de $ 1,000.00 $ $ $ 27 excess reserves apital 100.00 28 loans $ 790.00 29 t-bills $ 200.00 $ 1,100.00 $1,100.00 31 1C A after increase of 11% Maximum Loan $790 million 30 22