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Yellow Bank borrows 525.000 through a loan With Purple Bank (transaction A) and Issues 510:000 bonds to Dr Orange (transaction B). Dr Orange IS a
Yellow Bank borrows 525.000 through a loan With Purple Bank (transaction A) and Issues 510:000 bonds to Dr Orange (transaction B). Dr Orange IS a rich Widow who paid for the Yellow Bank bonds with the money ofthe rents she earned from her property investments in Sydney: money that was Sitting in her transactional bank account in Purple Bank Yellow Bank buys $4OOIOOO shares just issued by Winnie Company a honey producer that needs funding to renew its stock of beehives (transaction C) Winnie Company has its transactional bank account in Yellow Bank. a) Draw the changes in Yellow Bank's balance sheet and in Purple Bank's balance sheets resulting from transactions A. B and C. [Clearly indicate the name ofthe item affected in the balance. the change in the value and between brackets the letter of the transaction] No explanation is required. Only draw the two balance sheets (2.5 marks) b) Represent the diagram ofow of funds for all the transactions above [Clearly indicate the nancial instruments. the financial markets. the type of money involved, the creation and destruction where relevant] Do NOT refer to SSU' DSU or financial intermediary Do NOT include the central bank No explanation is required. (4 marks) c) Indicate which part of the story is a case otchannelling of funds in the financial system and which $value is channelled. Clearly identify the SSU' the DSU, and if relevant: any finanCIal intermediary. Assess ifthere is transit of funds Explain your answerin details (1.5 marks) d) Indicate which part of the story is a case of funding of economic actiVIty by net creation of private money and which $value is created Clearly identify how the net creation of money occurs in the banking system in this story Explain your answer in details. (1.5 marks)
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