ECON: MACRO4 (with CourseMate, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
4th Edition
ISBN: 9781285423623
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 13, Problem 2.8PA
To determine
the reasons for which the reserves held by a bank amount only to a fraction of its deposit liabilities and the importance of depositor’s confidence in their banks health is to be determined.
Concept Introduction:
Depository institutions are bank, building society, credit union, or other financial institution that solicits and accepts savings of the general public as demand deposits or time deposits, and pays a fixed or variable rate of interest.
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Chapter 13 Solutions
ECON: MACRO4 (with CourseMate, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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- Banks are financial intermediaries engaged in maturity transformation. Explain what it means for banks to engage in maturity transformation and what are the risks associated with it for banks and depositors. How do banks make profits?arrow_forwardGiven the danger of bank runs, why do banks not keep the majority of deposits on hand to meet the demands of depositors?arrow_forwardHow could higher deposit insurance premiums forbanks with riskier assets benefit the economy?arrow_forward
- Why can banks continue to hold reserves that are only a fraction of the demand deposits of their customers? Is your money safe in a bank? Why or why not?arrow_forwardWhat other alternatives do depositors have to bank deposits and how could that affect the bank’s ability to keep rates low?arrow_forwardExcess reserves are insurance from deposit outflow. Suppose you hold 15 million required reserves and 45 million excess reserves at the central bank. The total interest payment on reserves from the central bank is 0.3%. If you do not hold your excess reserves at the bank, you may take loans and earn 4% in average. What is the cost of holding excess reserve at the central bank?arrow_forward
- If lines of credit and other off-balance-sheet activities do not, by definition, appear on the bank’s balance sheet, how can they influence the level of liquidity risk to which the bank is exposed?arrow_forwardHow many banks failures occurred in the United States during 2021?arrow_forwardIf the bank you own has no excess reserves and a soundcustomer comes in asking for a loan, should you automatically turn the customer down, explaining that youdon’t have any excess reserves to lend out? Why or whynot? What options are available that will enable you toprovide the funds your customer needs?arrow_forward
- Do you think that it is fair that you pay into Social Security but some economists predict that it will run out of cash reserves by 2034 (AARP)?arrow_forwardwhat is a centeral bankarrow_forwardWhat limits the Bank of Canada’s ability to steer the economy to avoid both recession and inflation?arrow_forward
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