Big bucks bank Assets Liabilities Total reserves $30mm demand deposits $190mm Loans $100mm Bonds $100mm Stockholder equity $40 mm Suppose the required reserve ratio is 10%. What is the maximum amount of money Big buck bank can create? If the reserve ratio is increased to 14%, what is the maximum amount of money BBB can create? 3 If the reserve ratio is still at 10% and BBB chose to buy bonds instead of making loans with its excess reserves, what is the maximum amount of money BBB can create? a) From question #1 & #3, if the prospective Loans and Bonds both paid interest of 6.8%, which strategy would be more profitable for BBB? b) If BBB decided to pursue #1 as a strategy, what is the maximum money making potential of the banking system (same reserve ratio 10%)?
Big bucks bank
Assets Liabilities
Total reserves $30mm
Loans $100mm
Bonds $100mm
- Suppose the
required reserve ratio is 10%. What is the maximum amount of money Big buck bank can create? - If the reserve ratio is increased to 14%, what is the maximum amount of money BBB can create?
3 If the reserve ratio is still at 10% and BBB chose to buy bonds instead of making loans with its
a) From question #1 & #3, if the prospective Loans and Bonds both paid interest of 6.8%, which strategy would be more profitable for BBB?
b) If BBB decided to pursue #1 as a strategy, what is the maximum money making potential of the banking system (same reserve ratio 10%)?
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