Question
Consider the following transactions: (1) Top Bank repays a $40m interbank loan from Bottom Bank. (2) Middle Bank pays a $1m fine to the RBA,
Consider the following transactions:
(1) Top Bank repays a $40m interbank loan from Bottom Bank.
(2) Middle Bank pays a $1m fine to the RBA, the Australian central bank, for not meeting reserve requirement.
(3) Bottom Bank pays $0.5m interest on its RBA lending facility loan.
(4) Top Bank pays $20m on the governments account at the RBA for the purchase of government bonds newly issued.
(5) The RBA pays $3m salaries to its employees, who have a bank account at Middle Bank.
a. (i) Show how the balance sheet of the RBA is affected by these transactions. Represent all transactions in the same balance sheet and indicate for each transaction the item number as shown in the list.
(ii) Calculate the overall net impact of these transactions on the supply of Exchange Settlement Funds (ESF) in the banking system.
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