Assume that Bank M is the only commercialbank in the country with zero excessreserve and its legal cash requirement is12%. Suppose that a customer, Mr. S,deposits RM5000 in the Bank M.a) Construct a balance sheet for Bank Mb) Calculate the total deposits.c) Calculate the total reservesd) Calculate the total loans created

Being the only commercial bank in the country means the whole cycle of credit money creation, until…

Answered: Assume that Bank M is the only…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and makes a loan of $800, these transactions imply that: the money multiplier is 10. the money multiplier is 5. the money multiplier is 4. the money multiplier is 2. the money multiplier is 2.
Let us assume that a bank acquired reserves and deposits equal to ₱1,000 with a required reserve of 10% as imposed by the central bank. Solve for the amount of money that the bank can lend, given the reserves that are legally required to support the ₱ 1,000 deposit and the money multiplier
Assume the Bank of Smallville opens its doors to depositors and receives $100,000 in cash deposits. a) Prepare a balance sheet for Bank of Smallville based on the above information. b) Assume furthermore that the bank has to abide by a 20% reserve ratio. How much in excess reserves does the bank hold? Could this bank make a loan in the amount of $90,000? Briefly explain. c) Based on the amount of excess reserves, if the bank makes the loans, show the immediate impact on the Bank of Smallville's balance sheet. d) Calculate value of the money multiplier? e) How much money would be created in the banking system if other banks also lend as much as possible? Part B a) What is meant by the term "excess supply of money?" How does the money market resolve this disequilibrium? b) Explain with diagrams, what happens to the money supply, interest rates, investment spending and GDP when the central bank makes open market purchases.
Question 1 Please use an example to explain the process that the banking system uses to create money. Assume in your example that Bank 1 receives $1,200 from Firm A and sets up a checking account (demand deposits) for Firm A. Three firms, i.e., Firm A, Firm B, and Firm C, will be included in the process. Also assume that Bank 1, Bank 2, and Bank 3 all hold 12% in reserves and lend out the remaining demand deposits to corporations to earn interests.
Show how each of the following would initially affect a bank’s assets liabilities. Someone makes $1000 deposit into a checking account. A bank makes a loan of $1000 by establishing a checking account for $1000 The loan described in part (B) is spent. A bank must write off a loan because the borrower defaults.
A bank starts with $200 in deposits. The required reserve ratio is 10%. The bank loans out 70% of all non-required deposits and invests the rest in short-term securities. The bank capital is $15. a) Draw up a T-account for the above bank. List all assets and liabilities(+equity) in Ș. b) How much money can be withdrawn from this bank before it requires external help to avoid failure? Try and exhaust all internal measures before declaring panic. c) Would a bank want to reach the point you found in b) before asking for help? Why or why not? Prohlem 3
Select TWO true statements about money.a. Base money is equal to cash plus commercial bank reserves with the central bankb. Cash is a liability of the central bankc. If a commercial bank makes a loan and credits the borrower's current account, then base money increasesd. Commercial bank reserves with the central bank appear as a liability in their balance sheets
a) Bank A has the following balance sheet (in millions): Assets Cash Securities Loans Total assets $70 The bank is expecting a $12 million net deposit drain. Liabilities and equity Deposits Equity Total liabilities and equity $5 10 55 $62 9 $70 ii) Show the new balance sheet if the bank uses stored liquidity management to offset the expected drain. Also, explain the effect on the size and composition of assets and liabilities.
Using T-accounts, demonstrate the impact on reserves, checkable deposits, and the monetary base when a bank depositor withdraws RM5,000 of currency from his account.
A bank has the following balance sheet. It expects a net deposit drain of $500,000. Assets Liabilities and Equity Cash $300,000 Deposits $3,115,000 Loans 2,000,000 Equity 385,000 Securities 1,200,000 Total Asset $3,500,000 Total Liabilities and Equity $3,500,000 What is a net deposit drain and why is it of concern for the bank? Show the bank’s balance sheet if it uses stored liquidity to offset the expected drain.
Assume that banks holds no excess reserves and the public holds no currency: A. If a bank receives a deposit inflow of $100,000 explain (using t-accounts) what happens to this bank and one additional round in the deposit creation process assuming the reserve requirement is 8%. B. How much do deposits and loans change for the banking system when the process is completed? Show computation and the entire banking system's final T-account. C. Suppose the Central Bank sells $5 billion to ABC Bank. Determine what happens to checkable deposits of the entire banking system after the sale and completion of the multiple deposit creation process. Determine the change in checkable deposit in the banking system and show the T-account of the banking system.
Suppose you deposit $100 in a bank, which of the following will occur A The bank's assets will increase by $100 B The bank's liabilities will increase by $200 C The bank's liabilities will decrease by $100 D The bank's reserves will increase by $200

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