ike Bank
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ike Bank starts with $3000 in bank capital. It then accepts $2000 in deposits. It keeps 25 percent of deposits in reserve. It uses the rest of its assets to make bank loans.
a. Show the
b. What is Like Bank’s leverage ratio?
c. Suppose that 15 percent of the borrowers from like Bank default and these bank loans become worthless. Show the bank’s new balance sheet.
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- what is the maximum amount of loans that the Second National Bank can make if it holds only the required reserves?1. A company usually has an average balance in its bank account equal to $60,000. TheThe company makes a loan for $80,000 to pay it off over the long term. The interest rate on the loan is7%. The bank requires the company that, while the loan is in force, the company must havean average balance in your bank account of not less than $80,000. The requirement of this balancecompensation will result in the effective interest rate that the company will pay will be:a. 7%b. Less than 7%c. Greater than 7%d. cannot be determined2) Calgary Finance Bank has the following balance sheet: Assets Liabilities $100 $1000 Chequable Deposits Capital $1000 $100 Reserves Loans Assume there is no excess reserve. One day Jack luckily finds a bill of $20 underneath his mattress and he deposits it into this bank. a) Describe how this deposit may affect Calgary Finance Bank's balance sheet. b) What will be the excess reserve now? c) To keep reserve ratio at target level, what would this bank do? How would the action affect its balance sheet? d) If all commercial banks have the same target reserve ratio as this bank, and there is no cash drain, what will be the change in total deposits for the whole banking system after the process of money creation is completed?
- 17. Assume that a bank obtains most of its funds from long-term borrowed funds such as Federal Home Loan Bank borrowings. The bank's assets are in the form of loans with rates that adjust affected if interest rates every three months. In the next three months, the bank would be increase. A. negatively. B. favorably. C. unaffected.Need answers for D. 1, D. 2, and D. 32. A bank (banking system) has reserves of $700,000; advances of $1300,000 and deposits of $2,000,000 and is fully loaned-up. The Federal Reserve now buys $1m worth of bonds through its open market operations. What will the change in balances be in the balance sheet after two rounds of lending? What will the final (aggregate) balances be after the full credit creation process?
- Am. 113.Suppose that Big Bucks Bank has the simplified balance sheet shown below. The reserve ratio is 20 percent. Assets Liabilities and net worth (2) (1) (2) Reserves $ 26,000 38,000 36,000 Checkable deposits $ 100,000 Securities Loans Instructions: Enter your answers as a whole number. a. What is the maximum amount of new loans that Big Bucks Bank can make? 2$ Using the table above, show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additiona amount by inserting the new values into the gray shaded cells of the given table. b. By how much has the money supply changed?Calculate profit of the bank if you know that: a. You accept deposit 2000 b. Obligatory reserve rate = 10% c. Rate for deposit = 5% d. You invest as much as you can in bonds which have present value 80 and will be bought by 100 in year from now
- Suppose First Main Bank, Second Main Bank, and Third Main Bank all hold zero excess reserves. The required reserve ratio is 20%. Suppose that the Federal Reserve buys a government bond worth $1,500,000 from Jack, a client of First Main Bank. He immediately deposits the money into his checking account at First Main Bank. As a result of this transaction, the required reserves for First Main Bank will increase by $ type your answer... and its excess reserves will increase by $ type your answer...Bank A receives $70 in deposits at 5% and, together with 40 in equity, makes a loan of $90 at 7%. The remaining of assets is G-Bond. We will ignore taxes for the moment. NIM=Profit/Interest revenue Bank A Loan 7% $90 G-Bond 5% ? Deposits 5% $70 Equity $40 Total Assets $? Total Equity and Deposit $110 Given G-bond’s interest rate is 5%, Profit is equal to $4.9 $3.8 $4.0 $2.9 $3.1 $3.3 $20 $10c.) Bank A has three types of assets: Debenture ($90,000), Mortgage ($75,000), and Loan to the Government ($2000). The bank has Tier 1 capital of $15,000 and Tier 2 capital of $20,000. Calculate Capital adequacy ratio. If the capital adequacy requirement ratio is 8%, does the bank meet the requirement?
