Prepare the balance sheet of a bank that has $20 million in reserves, $40 millio
ID: 1206004 • Letter: P
Question
Prepare the balance sheet of a bank that has $20 million in reserves, $40 million in securities, $130 million in loans, $150 million in deposits, and $40 million in equity capital. If the reserve requirement is 10 percent, what are the bank’s excess reserves? Suppose that checks drawn on the bank’s account total $10 million. Show the revised balance sheet. What are the bank’s excess reserves? How much does the bank need to borrow? Suppose that the bank borrows one-half of its reserves deficiency from other commercial banks and half from the Fed. Now, what does its balance sheet look like?
Explanation / Answer
if bank's reserve ratio is 10% its reserves=150*10%
=$15
revised balance sheet post cheque drawn
thus there is adeficiency of $ 10
If bank borrows from FED and other banks balance sheet will restore to original first one
ASSUMPTION-change of 10% reserve ratio has been ignored for further ques,taking them as separate parts
Equity& Liabilities($) Assets Deposits 150 Reserves 20 Equity 40 Securities 40 Loans 130 190 190