QUESTION 2:

Your bank has the following balance sheet (Unit: million). The required reserve ratio is 10%.

To fill in the following tables, instead of using a positive or negative sign to indicate changes in the item, you need to write down the value for items in each cell.

(A) Update the balance sheet if there is an unexpected deposit outflow of $50 million.

(B) How much more reserves this bank needs to meet the requirement?

(C) Write down all possible actions the bank manager could take to rectify the situation.

(D) Write down the cost of each action you listed above.

(E) Suppose $30 of securities become worthless for this bank. Based on the balance sheet in part (A), update the balance sheet after $30 of securities becoming worthless.

(F) Will this bank become insolvent? Why?

Liabilities+Capital Deposits: $200 Borrowings: $0 Capital: $20 Assets Reserves: $50 Securities: $50 Loans: $120 Assets Liabilities Deposits Reserves Securities Borrowings Capital Loans