The FOMC has instructed the FRBNY Trading Desk to purchase $500 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 5 percent of transaction deposits. Assume U.S. banks withdraw all excess reserves and give out loans. What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 95 percent of these funds to their banks in the form of transaction deposits?
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The FOMC has instructed the FRBNY Trading Desk to purchase $500 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 5 percent of transaction deposits. Assume U.S. banks withdraw all
What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 95 percent of these funds to their banks in the form of transaction deposits?

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- Consider the U.S. banking system in 2007. Assume that the required reserve ratio is 10%, that there are no cash leakages, and that banks hold zero excess reserves. Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. As a result, Bank A finds itself with $1,000 in excess reserves that it lends out and those funds end up in Bank B. Q с D A) $1,000 B $900 Bank $990 A B Increase in Checkable Deposits $0 $1,000 $810 I New Required Reserves $0 LA $90 Refer to Table 13-1. What are the new checkable deposits created by extending new loans for Bank B? New Checkable Deposits Created by Extending New Loans $1,000Pretend that the country is in a normal economic climate. Suppose that the Federal Reserve, announces that the Fed plans to initiate the purchase of $2 million worth of Treasury and other bonds that banks and the public are currently holding. The reserve requirement for banks is 10% of deposits. In as much detail as possible, trace through all the steps between this announcement and the ultimate effects on the (i) money supply, (ii) interest rates, and (iii) inflation. Please utilize text explanations, graphs, T-accounts, and equations.The Fed injects $900 million reserves into Banking System with an Open-Market Purchase of Treasury Securities. If the reserve requirement ratio is 7%, the total change in deposits (with no drains, theoretical maximum) would be (in million $)
- If reserves in the banking system increase by $1 billion because the Fed lends $1 billion to financial institu- tions, and checkable deposits increase by $9 billion, why isn't the banking system in equilibrium? What will continue to happen in the banking system until equi- librium is reached? Show the T-account for the banking system in equilibrium.8. Second Bank has the following balance sheet in millions of dollars, with the Basel risk weights given in parentheses. a. Does the bank have enough capital to meet the requirements as specified by Basel II? b. The bank wishes to keep its Tier 1 ratio at 5%. They will sell a portion of their consumer loans and invest them in U.S. government bonds. How much consumer loans should they sell? U.S. Govt T-Bonds (o%) $10om Deposits $ 950m Govt. Agency FNMA Bonds (20%) $200m Subordinated Debt ((Tier II) $ 1om University Dorm bonds (50%) $30om Preferred Stock (Tier II) $ 25m Consumer Loans AAA-rated (20%) $20om Commercial Loans BBB-rated (100%) $200m Equity (Tier I) $ 15m $100om $1000m TotalSuppose the Bangladesh Bank purchases a government bond from you for TK 10,000. a. Suppose you deposit the TK 10,000 in First Security Bank. Show this transaction on First Security Bank's T-account. 02 b. Suppose the reserve requirement is 20 percent. Show First Security Bank's T-account if they loan out as much as they can. 02 c. At this point, how much money has been created from the Bangladesh Bank’s policy action?
- 6. Marly Bank currently has $650 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 9 percent. a. Show the balance sheet of the Federal Reserve and Marly Bank if Marly Bank converts all excess reserves to loans, but borrowers return only 60 percent of these funds to National Bank as transaction deposits. b. Show the balance sheet of the Federal Reserve and Marly Bank if Marly Bank converts 90 percent of its excess reserves to loans and borrowers return 75 percent of these funds to Marly Bank as transaction deposits.A well known bank has specialized in adjustable rate mortgages. They have originated 7 billion USD in adjustable rate mortgages. This bank generally raises money by borrowing with shorter term loans and issuing fixed-interest rate Certificates of Deposit. The bank has 6 billion in short-term adjustable rate loans to partly help fund the loan portfolio. The federal reserve has announced an increase in their target interest rate of 50 basis points (0.5%). What will the change outlined above do to the bank’s profitability (use gap analysis).Blue Demon Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $0.15 to $0.12 in 10 days. The following interbank lending and borrowing rates exist: Assume that Blue Demon Bank has a borrowing capacity of either $10 million or 70 million pesos in the interbank market, depending on which currency it wants to borrow. Assume 360 days in year for your calculations. Do not round intermediate calculations. Round your answers to the nearest dollar. How could Blue Demon Bank attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy. Blue Demon Bank can capitalize on its expectations by borrowing (DOLLARS OR PESOS) , converting it to (DOLLARS OR PESOS), lending the (DOLLARS OR PESOS), and repaying to (DOLLARS OR PESOS) loan. The expected profit is $ BLANK? Assume all the preceding information with this exception: Blue Demon Bank expects the peso to appreciate from its present…
- Suppose that banks had deposits of $500 billion, a desired reserve ratio of 4 percent and no excess reserves. The banks had $15 billion in notes and coins. Calculate the banks’ reserves at the central bank.Suppose a bank currently has $250,000 in deposits and $27,000 in reserves. The required reserve ratio is 10%. If at the end of the day, there is an unexpected withdrawal of $4,000 in reserves, what is the bank's resulting reserve ratio (expressed as a %)? Using the information from the prior problem, how much would the bank need to borrow in either the Fed Funds market or at the discount window, to be in complicance with the required reserve ratio?In aggregate, all banks in the US have total deposits of $8.2 trillion. Banks lend out all money they have in excess of required reserves and borrowers redeposit 70% of the funds they borrow. What is the new total of deposits across all banks if the Federal Reserve changes the reserve requirement from 11% to the following percent? Note: answer in trillions of dollars, report up to two decimal places. 8% 10% 12% 15%



