1. Consider Country XYZ with 100 thousand citizens. The currency of this country is called real. The deposits held in XYZ banks are such that each citizen has 1 single bank account. Thus each account corresponds to a citizen. The deposit stock of this country is worth 3 billion (3,000 million or 3,000,000,000) reals. The distribution is as follows:

100 account each holding 10 million reals totaling 1000 million = 1 billion reals

900 accounts each holding 1 million reals totaling 900 million reals

9000 (9 thousand) accounts each holding 100 thousand reals totaling 900 million reals

90000 (90 thousand) accounts each holding 2222.2 reals totaling 200 million reals.

The Finance Ministry is considering the merits of 2 different deposit insurance scheme:

1. Each account is insured up to 5000 (5 thousand) reals. How many people are insured? How many people have an incentive to monitor the banks? Briefly explain.
2. Each account is insured up to 200, 000 (200 thousand) reals. How many people are insured? How many people have an incentive to monitor the banks? Briefly explain.