D Question 16 Suppose the following: • Smokey Bank has total deposits of $600,000. . In addition, it currently has outstanding loans in the amount of $400,000 . Finally, the required reserve ratio is 15%. What is the money multiplier? O 0.90 O 0.10 90 O 15 O 6.67
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- §Suppose that the T-account for First National Bank is as follows: Assets Liabilities Reserves: 90.000-TL Deposits: 500.000-TL Loans: 410.000-TL § §If the Central Bank requires banks to hold 10% of deposits as reserves, how much in excess reserves does First National Bank now hold? MM=1/rr MM=1/(10/100) MM=10 40000*10=400000TL §Assume that all other banks hold only the required amount of reserves. If First National decides to reduce its reserves to only the required amount, by how much would the economy’s money supply increases?2. Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (1), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation. part 1 answer DRR = Ratio (4% or 0.04) CDR = % of money in wallets (3% or 0.03) = (1 + 0.03) / (0.04 + 0.03) = 1.03 / 0.07 Answer = 14.71 Therefor Every $1 in the bank will allow the bank to create $14.71Bank A has $5,000 in reserves, all required to be held. The required reserve ratio is 10 percent. Bank A has checkable deposits of O $500. O $5,000. O $50,000. O $500,000.
- Question 1) Explain what will happen to M1 and M2 measures of money supply if an individual moves money from demand deposit account to a small-denomination time deposit. Question 2) Issuing marketable securities is the primary way businesses finance their operations. Trueor false? Explain your answer. If a four-year bond with a $2000 face value has a coupon rate of 2.5%, and the currentmarket interest rate is 4%, what is the market price of the bond? If this bond sold for $1900, is theyield to maturity greater or less than 4%? Why?The table below reports the breakdown of assets and liabilities for all commercial banks for January 2020, two months before the start of the COVID-19 recession, and December 2020. Assets (in billions of dollars) Liabilities (in billions of dollars) Jan-20 Dec-20 Jan-20 Dec-20 Loans $10,041.54 $10,376.47 Deposits $13,293.30 $16,061.82 Reserves $1,768.52 $3,168.94 Borrowings $1,965.90 $1,715.81 Treasury Securities $3,008.19 $3,726.10 Other Liabilities $593.42 $825.74 Other Assets $2,984.52 $3,224.45 Total Assets $17,802.77 $20,495.96 Total Liabilties $17,802.77 $20,495.96 From January to December, the net worth of banks changed by $___ billion (round your answer to two decimal places).4. a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not?c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not?
- 12)Assume the banking system has $100 billion in demand deposits and $10 billion in reserves. In addition, assumethat the required reserve ratio is 5%. Answer the following questions:a) How much excess reserves are in this system?b) What is the value of the money multiplier?c) What is the maximum amount of change in demand deposit creation that could take place if the bankingsystem lent out all of its excess reserves.Define asset liquidity. Provide an example of a highly liquid and highly illiquid asset. 16.What is a key advantage of money over other financial assets such as stocks, bonds, precious metals or real estate? 17.What are the two major components of the M1 money supply?13. Refer to Table 1. First Commercial bank’s excess reserves equal $__________.a) 150,000b) 250,000c) 100,000d) 50,00014. Refer to Table 1. First Commercial Bank’s total loans equal $______________.a) 1,050,000b) 1,180,000c) 1,150,000d) 1,250,000
- Assume that Money Wang sells his bonds to BSP amounting to P50,000. From this,Money Wang receives a check awarded by BSP with the same amount. Money Wangdeposits the check at Metrobank. In the banking system, BSP’s required reserve ratio is20%, and that the banking system currently has no excess reserves. Answer thefollowing questions:1. By how much will be the change in Metrobank’s checkable deposit on its balance sheet? 2. How much is the change in the required reserves and the excess reserves on Metrobank’s balance sheet?3. Now assume that Metrobank lends out all of its excess reserves to Robert Marasigan. Determine the amount that Metrobank can lend to Roberta Marasigan.4. Roberta Marasigan deposits the loaned amount in BDO. BDO, just like Metrobank,loans out also all of its excess reserves from Roberta Marasigan’s deposit to NoellaBautista.A. What will be the amount of the loan by BDO?B. Determine the change in the checkable deposit on the balance sheet of BDO.5. Now think of this…Assume that the balance sheet of a bank in your assigned country as below:Assets LiabilitiesReserves $5,000 Deposits $40,000Loans $45,000 Capital $10,000a. If the required reserve ratio is 3 percent, then how much does this bank has excessreserves?b. Suppose a bank purchases $1,500 of government securities using funds from reserves.How much do bank assets change as a result of this transaction? Show the change inthe balance sheet above. How much does Money Supply change due to this transaction?c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the marketvalue of assets before the bank becomes insolvent?2. Assume that a particular bank has excess reserves of Php800,000 and checkabledeposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank’sactual reserves?
