The following are a complete list of the assets and the liabilities of a central bank – let’s call the central bank The Federal Reserve Bank.

Private bank reserve balances.....................................$60,000mn

Currency at issue and bank vault money..................$70,000mn

Government and other securities............................$180,000mn

Balances held at the central bank by foreign central banks and others..........$10,000mn

Foreign exchange reserves......................................$15,000mn

Government balance................................................$50,000mn

Outstanding loans to banks and others.................$50,000mn

1) Identify each of the above as an asset or a liability for the central bank. 

2) Calculate the ‘net worth’ or ‘equity capital’ of the central bank.

3) Draw up the balance sheet of the central bank, in full. 

4) Explain fully the impact of the following transactions on the central bank’s balance sheet:

(i) The central bank sells $10,000mn worth of government bonds to investors.

(ii) The central bank buys $2,000mn worth of foreign exchange from banks.