Q. 4 Bank A Balance SheetAssetsLiabilities + Net WorthUses of FundsSources of Funds$65,000 Demand DepositsOther DepositsReserves$150,000$1,000,000$85,000 BorrowingFrom the FedTreasury Bonds$50,000$100,000From Fed Funds MarketLoans$1,350,000 Net Worth$200,000TotalS1,500,000 TotalS1,500,000Bank B Balance SheetAssetsLiabilities + Net WorthUses of FundsSources of Funds$10,000 Demand DepositsOther DepositsReserves$100,000$940,000Treasury Bonds$35,000 BorrowingFrom the FedFrom Fed Funds Market$30,000Loans$1,255,000 Net Worth$230,000Total$1,300,000 TotalS1,300,000Suppose that in a country, there are only two banks, Bank A and Bank B. The file HW4 Bank BalanceSheets shows their balance sheets. Here are some simplifying assumptions to make our lives a bitmore bearable:1. The country uses dollars as its unit of accounts.2. There are no travelers' checks.3. There are no fancy accounts in this country like money market mutual funds deposits.4. Other deposits consist of saving deposits by households as well small denomination (lessthan $100,000) time deposits.5. The amount of currency held by the non-bank public is $25,000.6. All the reserves are held at the central bank. They also call their central bank "the Fed".7. The required reserve ratio is 10 percent. Brandon borrows $100,000 from Bank A to buy a yacht from Carolyn. Carolyn will deposit thatmoney in her bank, which is Bank B. Bank A lends the money by crediting Brandon's checkingaccount by $100,000 by a few keystrokes. After the loan is made but before that money is transferredto Bank B, the entries in Bank A's balance sheet will look like the following (all in dollars):Brandon borrows $100,000 from Bank A to buy a yacht from Carolyn. Carolyn will deposit thatmoney in her bank, which is Bank B. Bank A lends the money by crediting Brandon's checkingaccount by $100,000 by a few keystrokes. After the loan is made and after that money is transferred toBank B, the entries in Bank A's balance sheet will look like the following (all in dollars):Demand deposits =Other deposits =Borrowing from the Fed =Borrowing from the Fed Funds market =Net worth =Total Liabilities =Reserves =Treasury bonds =Loans =Total assets =Hint: Note that Bank A does not have enough reserves to transfer to Bank B. In such cases, the Fedautomatically transfers the whole $100,000 to Bank B and extends a loan to Bank A for thedifference. So you have to assume that the Fed lends the overdraft amount to Bank A. Moreover,recall that the required reserve ratio is zero percent. This means that banks cannot have negativereserves.

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Brandon borrows $100,000 from Bank A to buy a yacht from Carolyn. Carolyn will deposit that money in her bank, which is Bank B. Bank A lends the money by crediting Brandon's checking account by $100,000 by a few keystrokes. After the loan is made and after that money is transferred to Bank B, the entries in Bank A's balance sheet will look like the following (all in dollars): Demand deposits = Other deposits =