The Balance Sheet Of The Central Bank

1407 WordsApr 27, 20176 Pages
i) Describe the balance sheet of the central bank making clear the composition of its assets and liabilities. The central bank is used to engage in the numerous financial transactions it deals with daily. It can supply currency, provide deposit accounts to the government and commercial banks, make loans, and buy and sell securities and foreign currency. As a result, this causes changes to the central bank’s balance sheet. The central bank’s balance sheet shows three basic assets, which are securities, foreign exchange reserves, and loans. The securities and foreign exchange reserves are needed so the central bank can perform its role as being the government’s bank. While the loans are a service to the commercial banks. Before the…show more content…
Discounted loans are loans that the Federal Reserve makes when a commercial bank needs short-term cash. However, there are several different types of loans that can be issued, and there are times when the Federal Reserve will issue loans to nonbanks. For example, during 2008 and 2009 the Federal Reserve had made substantial loans to nonbanks because of the financial crisis. The central bank’s liabilities are also seen in three different forms which are: currency, government deposit accounts, and deposit accounts of the commercial bank. These can also be divided into different groups based on their purpose. The currency and government deposit accounts allow the central bank to perform its role as the government’s bank. Currency is used in daily transaction everywhere, and since it circulates in the hands of the nonbanking public, it is the principal liability of most central banks. Government accounts are used as a place to deposit the income and used to pay for the things they buy, it is nearly similar to what people need a deposit account for. The central bank provides the government an account to deposit their funds, and they can shift their funds between accounts at commercial banks and the Federal Reserve. Lastly, is the commercial accounts and contains two parts: one is the deposits at the central bank and the cash in the bank’s own vault. The bank can withdrawal funds from the central bank, and the commercial bank can wire portions of a deposit accounts
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