B3

Keele Bank has the following items on its balance sheet (expressed in $billion).

ESF	2
Accumulated retained profit	54
Term Deposits of customers	630
Loans to households	500
Capital notes on issue	4
Demand deposits of customers	128
Shares on issue	16
Provisions for bad and doubtful debt	10
Loans to businesses	300
Capital Reserve	10
Government securities (trading)	30
Government securities (available for sale)	20

(a) Build Keele Banks balance sheet incorporating all the above items and calculate Keele Banks equity.

(5 marks)

(b) Using one new balance sheet (separate from the one in a), represent the effect of the following operations on the balance sheet of the bank described in question (a). [Only represent variations, not new levels. ]

(i) The market value of the government bonds held by Keele Bank for trading purposes increases by $3 billion.

(ii) The market value of the government bonds held by Keele Bank for liquidity purposes increases by $2 billion.

(iii) Keele Bank writes off $15 billion of loans made to households.

(iv) Keele Bank makes $1 billion new loans to businesses that have an account in the bank.

(v) Keele Bank buys new furniture for $0.2 billion from a company that is not a customer of the bank.

(10 marks)