(a) Suppose a bank held $10 million in treasury securities, and their value fell to $9.7 million.What is the effect on bank capital? (b) Suppose a bank pays $1 million in deposits out of reserves. What is the effect on bankcapital? (c) Suppose a bank has return on assets of 4% and return on equity of 24 %, what is thebanks leverage and leverage ratio?(d) Suppose a bank has a 15% reserve requirement and can loan funds at an interest rateof 4% while paying depositors 1%. Consider a deposit of $100, what is the return thebank earns on this $100? (e) Now suppose reserve requirements are 20% how does your answer to the previous ques-tion change? Which policy would banks prefer?

(a) Suppose a bank held $10 million in treasury securities, and their value fell to $9.7 million.What is the effect on bank capital? (b) Suppose a bank pays $1 million in deposits out of reserves. What is the effect on bankcapital? (c) Suppose a bank has return on assets of 4% and return on equity of 24 %, what is thebanks leverage and leverage ratio?(d) Suppose a bank has a 15% reserve requirement and can loan funds at an interest rateof 4% while paying depositors 1%. Consider a deposit of $100, what is the return thebank earns on this $100? (e) Now suppose reserve requirements are 20% how does your answer to the previous ques-tion change? Which policy would banks prefer?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter12: Money And Banking

Section: Chapter Questions

Problem 10E

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