Explanation Option (a): The banks are usually highly leveraged. Therefore, a small decline in the assets can potentially have a major impact on the value of the bank capital. Hence, a 5% decline in the value of a bank’s assets will cause the value of the bank’s capital to fall by more than 5%. Thus, option (a) is correct. Option (b): The decline in the value of assets by 5% will decrease the value of bank’s capital by more than 5%. Thus, option (b) is incorrect...

The changes on the bank’s assets and capital due to the leverage effect.

Macroeconomics

10th Edition

ISBN: 9781319105990

Author: Mankiw, N. Gregory.

Publisher: Worth Publishers,

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Chapter 4, Problem 5QQ

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The changes on the bank’s assets and capital due to the leverage effect.

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01. This bank's actual reserves are $_______ 02. Assuming a required reserve ratio of 10%, this bank's requirered reserves are $_______. 3. Assuming a required reserve ratio of 10%, the amount of money that the whole baning system can create is $_____ 4. Assuming a required reserve ratio of 20%, the impact on the quantity of money issued by the whole banking system will be $__________.
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Question 2 B A commercial bank has capital of $5000 and a leverage ratio of 10. If the value of the bank’s assets increases by 5%, then its capital has _____ to ______. Select one: a. increased / $5,250 b. increased / $5,500 c. decreased / $4,500 d. decreased / $4,000 e. decreased / $2,500 Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this line
Below is the balance sheet for a bank. Under "Other" it has listed "$X" just think of this as the dollar amount needed to make the balance sheet balance. It is not important what that value is for this question. AssetsLiabilitiesReserves 32Deposits 205Loans 150 Securities 53Other $X Using the balance sheet above, find the level of required reserves for this bank if the required reserve ratio = 8%(Give answers to 2 decimal places as needed)
2. Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5% (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans. A.) Show the balance sheet of Happy Bank.B.) What is Happy Bank’s leverage ratio?C.) Suppose that 10% of the borrowers from Happy Bank default and these bank loans become worthless. Show the bank’s new balance sheet. Please only answer part D D.) By what percentage do the bank’s total assets decline? By what percentage does the bank’s capital decline? Which change is larger? Why?
Your bank has the following balance sheet: Assets Liabilities Checkable Reserves $90 million $380 million deposits $130 Securities million Loans $200 million Bank capital $40 million If the required reserve ratio is 20%, what will be the size of this bank (as measured by its total assets or liabilities) after $20 million deposit outflow if it just meets reserve deficiency by taking out a discount loan from the Federal Reserve? $402 million $400 million. OOOO $420 million. $412 million.
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05 A bank that has assets of $60 billion and a net worth of $20 billion must have Mc Sraw Hill Multiple Choice excess reserves of $20 billion. O excess reserves of $40 billion. liabilities of $20 billion. liabilities of $40 billion. & V

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