7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Nick, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities
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- 7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Tim, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) (Dollars) 1,800,000 Liabilities Change in Required Reserves (Dollars) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Rosa, who immediately uses the funds to write a check to Nick. Nick deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls…7. The money creation processSuppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 25%. Brian, a client of First Main Street Bank, deposits $1,800,000 into his checking account at First Main Street Bank.Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans).AssetsLiabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%.Hint: If the change is negative, be sure to enter the value as negative number.Amount DepositedChange in Excess ReservesChange in Required Reserves(Dollars)(Dollars)(Dollars)1,800,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Alyssa, who immediately uses the funds to write a check to Tim. Tim deposits the funds immediately into his checking account at Second Republic Bank. Then Second…7. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. Van, a client of First Main Street Bank, deposits $1,500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 1,500,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Sharon, who immediately uses the funds to write a check to Paolo. Paolo deposits the funds immediately into his checking account at Second Republic Bank.…
- The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Brian, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities 2 categories under Assets: 1. Building and furniture, Deposits, Loans, Net worth or Reserves 2. $300,000 or $1,200,000 or $1,500,000 or $3,600,000 2 Categories under Liabilities: 1. Building and furniture, Deposits, Loans, Net worth or Reserves 2. $300,000 or $1,200,000 or $1,500,000 or $3,600,000 Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in…Assume the Bank of Smallville opens its doors to depositors and receives $100,000 in cash deposits. a) Prepare a balance sheet for Bank of Smallville based on the above information. b) Assume furthermore that the bank has to abide by a 20% reserve ratio. How much in excess reserves does the bank hold? Could this bank make a loan in the amount of $90,000? Briefly explain. c) Based on the amount of excess reserves, if the bank makes the loans, show the immediate impact on the Bank of Smallville's balance sheet. d) Calculate value of the money multiplier? e) How much money would be created in the banking system if other banks also lend as much as possible? Part B a) What is meant by the term "excess supply of money?" How does the money market resolve this disequilibrium? b) Explain with diagrams, what happens to the money supply, interest rates, investment spending and GDP when the central bank makes open market purchases.In preparing its March 31, 2020 bank reconciliation, Blue Devil Inc. has available the following information: Balance per bank statement, 03/31/2020 $18,650 Deposit in transit, 03/31/2020 3,900 Return of customer's check for insufficient funds, 03/31/2020 600 Outstanding checks, 03/31/2020 2,750 Bank service charges for March, 2020 100 Required: Identify which type of adjustment is needed for each of the following four transactions. The four types of adjustments include: (A) Add to the book balance; (B) Deduct from the book balance; (C) Add to the bank balance; and (D) Deduct from the bank balance. I. Deposit in transit, 03/31/2020 II. Return of…
- Assume that banks holds no excess reserves and the public holds no currency: A. If a bank receives a deposit inflow of $100,000 explain (using t-accounts) what happens to this bank and one additional round in the deposit creation process assuming the reserve requirement is 8%. B. How much do deposits and loans change for the banking system when the process is completed? Show computation and the entire banking system's final T-account. C. Suppose the Central Bank sells $5 billion to ABC Bank. Determine what happens to checkable deposits of the entire banking system after the sale and completion of the multiple deposit creation process. Determine the change in checkable deposit in the banking system and show the T-account of the banking system.Assume that Bank M is the only commercial bank in the country with zero excess reserve and its legal cash requirement is 12%. Suppose that a customer, Mr. S, deposits RM5000 in the Bank M. a) Construct a balance sheet for Bank M b) Calculate the total deposits. c) Calculate the total reserves d) Calculate the total loans createdA bank starts with $200 in deposits. The required reserve ratio is 10%. The bank loans out 70% of all non-required deposits and invests the rest in short-term securities. The bank capital is $15. a) Draw up a T-account for the above bank. List all assets and liabilities(+equity) in Ș. b) How much money can be withdrawn from this bank before it requires external help to avoid failure? Try and exhaust all internal measures before declaring panic. c) Would a bank want to reach the point you found in b) before asking for help? Why or why not? Prohlem 3
- Using the following information, prepare a bank reconciliation for Kingbird Beauty Supply Company for May 31, 2025. a. b. C. d. e. f. The bank statement balance is $8,280. The cash account balance is $6,600. Outstanding checks totaled $1,900. Deposits in transit are $600. The bank service charge is $20. Collection of note by the bank, $400. Kingbird Beauty Supply Company Bank Reconciliation $ $ $ $a) Bank A has the following balance sheet (in millions): Assets Cash Securities Loans Total assets $70 The bank is expecting a $12 million net deposit drain. Liabilities and equity Deposits Equity Total liabilities and equity $5 10 55 $62 9 $70 ii) Show the new balance sheet if the bank uses stored liquidity management to offset the expected drain. Also, explain the effect on the size and composition of assets and liabilities.2. On 31 December 2018 the bank columns of K Towett's cash book showed a balance of Sh.45,000. The bank statement as at 31 December 2018 showed a credit balance of Sh.88,500 on the account. You checked the bank statement with the cash book and found that the following had not been entered in the cash book: i) ii) ii) iv) A standing order to Jubilee insurance for Sh.6,000 had been paid by the bank Bank interest receivable of Sh.7,200 had not been entered in to the account Bank charges of Sh.900 had been made A credit transfers of Sh.7,800 from KB Ltd had been paid direct into the account v) Jowett's deposit account balance of Sh.42,000 had been transferred into his bank current account vi) A returned cheque of Sh.2,100 dishonored by C Hill had been entered on the bank statement. You also found that two cheques, payable to P Young Sh.7,500 and K Clara Sh.8,700, had been entered in the cash book but had not been presented for payment. In addition, a cheque for Sh.20,700 had been paid into…