First National Bank Assets Liabilities and Owners’ Equity $1,200 | Deposits $8,000 Debt $800 Capital (owners’ equity) Reserves $9,000 $800 Loans Short-term securities $200
First National Bank Assets Liabilities and Owners’ Equity $1,200 | Deposits $8,000 Debt $800 Capital (owners’ equity) Reserves $9,000 $800 Loans Short-term securities $200
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Which of the following is true?
The leverage ratio is 50 meaning that for every $1 in capital the bank has $50 in assets.
The leverage ratio is 45 meaning that for every $200 of capital the bank has $45 in deposits.
The leverage ratio is 50 meaning that for every $200 of capital the bank has $50 in assets.
The leverage ratio is 45 meaning that for every $1 of capital the bank has $45 in deposits.
Transcribed Image Text:**First National Bank Balance Sheet Overview**
This balance sheet provides a snapshot of the financial standing at First National Bank, detailing its assets, liabilities, and owners' equity.
**Assets:**
- **Reserves:** $1,200
- **Loans:** $8,000
- **Short-term Securities:** $800
**Liabilities and Owners' Equity:**
- **Deposits:** $9,000
- **Debt:** $800
- **Capital (Owners' Equity):** $200
**Explanation:**
The balance sheet is divided into two main sections:
1. **Assets:** Represents the resources owned by the bank, which include:
- **Reserves:** Cash or equivalent assets that the bank holds to meet withdrawal demands.
- **Loans:** Amounts lent to customers, expected to be repaid with interest.
- **Short-term Securities:** Investment in securities that are expected to be liquidated within a short period.
2. **Liabilities and Owners' Equity:** Represents the obligations of the bank and the residual interest in its assets:
- **Deposits:** Funds deposited by customers, constituting the primary liability of the bank.
- **Debt:** The bank's borrowings, excluding customer deposits.
- **Capital (Owners' Equity):** The owners' claim after all liabilities have been settled, indicating the net worth of the bank.
The balance sheet is a crucial tool for assessing the bank's financial health, guiding stakeholders in evaluating profitability and risk.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education