Question 8 (6 marks, each question is worth 1 mark)

 

The below table shows balance sheet for a chartered bank. Assume that the bank has achieved its target reserve ratio.

                          Balance Sheet: Regal Bank                                                    

                        Assets                                                  Liabilities

Reserves       $1250                                         Deposits                    $7160

Loans            $6700                                       Capital (Net Worth)    $  790

  

8.1 Calculate the bank’s target reserve ratio.

8.2 Calculate the value of the owners’ investment in the bank. 

8.3 Given your answer in [8.1] and assuming zero cash drain, compute the deposit multiplier

8.4 Given your answer in [8.1], suppose that 3.7 percent of the new reserves are held in the form of currencies, calculate the money multiplier.

8.5 Given your answer in [8.1] calculate the amount of excess reserves.

8.6 Assuming a new deposit in the bank has been made in the amount of $1,040. Write the new balance sheet showing the immediate effect of the new deposit. Calculate the bank’s new target reserve ratio.