Question
MHM Bank currently has $700 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is
MHM Bank currently has $700 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is increasing this requirement to 10 percent. |
a. | Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts all excess reserves to loans, but borrowers return only 70 percent of these funds to MHM Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161)) |
Panel A: Initial balance sheets |
Federal Reserve Bank | |||
Assets | Liabilities | ||
(Click to select)LoansReserve deposits at FedReserve accountsSecuritiesTransaction deposits | $ million | (Click to select)SecuritiesLoansReserve accountsTransaction depositsReserve deposits at Fed | $ million |
MHM Bank | |||
Assets | Liabilities | ||
(Click to select)SecuritiesReserve accountsTransaction depositsReserve deposits at FedLoans | $ million | (Click to select)SecuritiesTransaction depositsReserve accountsReserve deposits at FedLoans | $ million |
(Click to select)Transaction depositsSecuritiesReserve accountsLoansReserve deposits at Fed | $ million | ||
Panel B: Balance sheet after all changes |
Federal Reserve Bank | |||
Assets | Liabilities | ||
(Click to select)LoansReserve accountsReserve deposits at FedTransaction depositsSecurities | $ million | (Click to select)Reserve deposits at FedSecuritiesReserve accountsLoansTransaction deposits | $ million |
MHM Bank | |||
Assets | Liabilities | ||
(Click to select)Reserve deposits at FedSecuritiesReserve accountsTransaction depositsLoans | $ million | (Click to select)Reserve accountsLoansReserve deposits at FedSecuritiesTransaction deposits | $ million |
(Click to select)LoansSecuritiesTransaction depositsReserve accountsReserve deposits at Fed | $ million | ||
b. | Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts 70 percent of its excess reserves to loans and borrowers return 90 percent of these funds to MHM Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161)) |
Panel A: Initial balance sheets |
Federal Reserve Bank | |||
Assets | Liabilities | ||
(Click to select)Reserve deposits at FedSecuritiesReserve accountsLoansTransaction deposits | $ million | (Click to select)Transaction depositsReserve deposits at FedSecuritiesReserve accountsLoans | $ million |
MHM Bank | |||
Assets | Liabilities | ||
(Click to select)Transaction depositsReserve accountsLoansReserve deposits at FedSecurities | $ million | (Click to select)LoansReserve accountsSecuritiesReserve deposits at FedTransaction deposits | $ million |
(Click to select)SecuritiesTransaction depositsLoansReserve deposits at FedReserve accounts | $ million | ||
Panel B: Balance sheet after all changes |
Federal Reserve Bank | |||
Assets | Liabilities | ||
(Click to select)SecuritiesTransaction depositsReserve accountsLoansReserve deposits at Fed | $ million | (Click to select)Transaction depositsLoansSecuritiesReserve accountsReserve deposits at Fed | $ million |
MHM Bank | |||
Assets | Liabilities | ||
(Click to select)SecuritiesReserve deposits at FedLoansTransaction depositsReserve accounts | $ million | (Click to select)SecuritiesReserve accountsReserve deposits at FedLoansTransaction deposits | $ million |
(Click to select)Transaction depositsReserve accountsReserve deposits at FedLoansSecurities | $ million | ||
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