Consider that there is only one bank and its balance sheet is as shown. Let rrD = 10%. If $100 in demand deposits were withdrawn this will deplete the bank's reserves and they will have to sell offsome of its loan portfolio to make up the difference and to restore the reserves that are still required for the remaining deposit balance. After the bank has restored equilibrium, what would be theremaining loan balance?AssetsLiabilitiesReserves$60 Demand Deposits$500Loans$440O $320O $360O $400O $200O It cannot be determined precisely, but it would be less than $100.

Answer: option b ($360) Explanation: The bank will use $60 in reserves to pay for the $100…

Answered: Consider that there is only one bank…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the value of a bank's loan declines, what is the corresponding reduction on the other side of its balance sheet? Equity is reduced by the amount of the decline in the value of the loan. Borrowing from other banks are reduced by the amount of the decline in the value of the loan. Deposits are reduced by the amount of the decline in the value of the loan. Cash is reduced by the amount of the decline in the value of the loan.
Squeezed at home by razor-thin margins and negative interest rates, Japanese banks have more than doubled borrowing and lending in dollars since 2017. Why is this practice risky? Japanese banks are exposed to liquidity risks due to difficulty in pulling funds out of foreign countries in a short time period. Japanese banks are exposed to interest rate risks due to uncontrollable rate changes outside the jurisdiction of Japanese central bank. Japanese banks are exposed to default risks due to lending to foreign borrowers. Japanese banks are exposed to exchange rate risks due to mismatched assets and liabilities in different currencies.
Explain the impact of interest rate change in a bank income and net worth
The Federal Deposit Insurance Corporation is at least partly to credit for which of the following? A) Lower taxes and government spending B) Increased interest rates for savers C) Increased interest rates for borrowers D) Reduced bank runs
Suppose a bank faces a gap of -20 between its interest-sensitive assets and its interest-sensitive liabilities. What would happen to bank profits if interest rates were to fall by one percentage point? You should report your answers in terms of the change in profit per $100 in assets.
Consider the following information of a bank's balance sheet: Reserves = $200 Reserve ratio = 0.25 Loans = $600 Debt = $340 Securities = $400 a) Write down the balance sheet and find the leverage ratio. b) If the bank's value of assets rises by 2%, what happens to the value of the owner's equity in the bank? c) How large would the decline in the value of stocks held in the bank need to be for the bank to go insolvent?
The chartered banking system in Canada plays a crucial role in expanding or contracting the money supply as dictated by the monetary policy of the Bank of Canada. If excess reserves in the Canadian chartered banking system are $4,000, demand deposits are $40,000, and the desired reserve ratio is 10 percent, then actual cash reserves: Multiple Choice are $8,000. are $4,000. are $6,000. cannot be determined from this information. are $10,000.
Leniency Bank wishes to cater to the demands of the residents of Prudence Island, a savings-minded clientele with an unusual appetite for government securities. To this end, Leniency Bank is planning to purchase a large amount of government bonds, which later will be offered to its account holders. The bonds are purchased with the reserves of the bank. The balance sheet describes the bank's current financial situation in millions of dollars. Suppose that the required reserve ratio set by the Fed is 10%. What is the largest government securities purchase Leniency Bank could make before it becomes fully loaned up? Assets cash: $19 reserves: $50 loans; $100 securities: $24 property: $83 Balance sheet: Leniency Bank Liabilities checkable deposits: $230 stock shares: $46 largest government securities purchase: $ million.
Question 15 A bank with no excess reserves has a target reserve ratio of 0.1. It has $800 in reserves and $850 in government bonds. Its only other asset is loans to customers, and its only liability is customer deposits. What is the dollar value of loans to customers? (Round to two decimal places and do not enter the currency symbol. If your answer is $6.114, enter 6.11. If your answer is $6.115, enter 6.12. If appropriate, remember to enter the - sign.)
The central bank buys $10,000 worth of bonds in the open market from Elaine, who deposits the proceeds in her checking account at MSM Bank. The required reserve ratio is 5%. (a) What is the amount by which MSM Bank’s liabilities have changed? Explain. (b) Calculate the change in required reserves for MSM Bank. Show your work. (c) What is the dollar value of the maximum amount of new loans MSM Bank can initially make as a result of Elaine’s deposit? Explain. (d) Based on the central bank’s open-market purchase of bonds, calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect aggregate demand and the price level in the short run? Explain.
Suppose the Fed buys $2000000 in government securities from someone who is a depositor at the First National Bank of El Reno. Lets assume the person deposits this money in this bank. Further assume that the current reserve requirement ratio is 20%. Please indicate below what will initially happen to this bank's balance sheet as a result of this transaction. Change in Reserves Change in loans Change in deposits Please indicate what will eventually happen to the nation's banking system as a result of this transaction. Change in reserves Change in loans Change in Deposits
QUESTION 4 You are the bank's liquidity manager. What should you do if borrowed liquidity becomes cheaper and why? Answer this question by filling in the blanks. Please use the suitable word provided in the round brackets. The risk of illiquidity (increased/decreased/did not change). The cost of illiquidity (increased/decreased/did not change). Therefore it makes sense to (increase/decrease/ maintain) the ESF buffer. As a result your bank will provide (more/less/the same) liquidity transformation for society.

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