Bundle: Essentials Of Economics, Loose-leaf Version, 8th + Lms Integrated Mindtap Economics, 1 Term (6 Months) Printed Access Card
8th Edition
ISBN: 9781337368087
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21, Problem 4CQQ
To determine
The leverage ratio and the asset of the bank.
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A bank has a capital of $200 and a leverage ratio of 5. If the value of the bank's assets declines by 10 percent, then its capital will be reduced to
a. $100.
b.$150.
c. $180.
d. $185.
Assets
Liabilities and Equity
Reserves $5,000
Demand deposits $20,000
Business loans $10,000
Student loans $8,000
Government securities $2,000
Equity (Net worth) $5,000
Total assets $25,000
Total liabilities and equity $25,000
The following is a balance sheet for Smith Bank. Assume a 10% reserve requirement.
A. Calculate a 10% reserve requirement
B. Calculate the maximum amount of additional loans that Smith Bank can make without selling its holdings of government securities.
C. Assuming that Smith Bank and other banks now lend out all excess reserves, calculate the maximum possible change in the following:
i. Demand deposits throughout the banking system
ii. Total reserves throughout the banking system
D. Suppose that the country's central bank purchases $1,000 of Smith Bank's holdings of government securities as part of its open market operations. Do…
A bank has the following balance sheet:
Assets
Liabilities
Rate-sensitive $100 million
Rate-sensitive $75 million
Fixed-rate $100 million
Fixed-rate $125 million
Explain what would happen to bank profits if the interest rates in the economy go down?
Chapter 21 Solutions
Bundle: Essentials Of Economics, Loose-leaf Version, 8th + Lms Integrated Mindtap Economics, 1 Term (6 Months) Printed Access Card
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1CQQCh. 21 - Prob. 2CQQCh. 21 - Prob. 3CQQCh. 21 - Prob. 4CQQCh. 21 - Prob. 5CQQCh. 21 - Prob. 6CQQ
Ch. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QRCh. 21 - Prob. 7QRCh. 21 - Prob. 8QRCh. 21 - Prob. 9QRCh. 21 - Prob. 10QRCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PA
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- A bank has deposits of 400. It holds reserves of 50. It has purchased government bonds worth 70. It has made loans of 500. Set up a T-account balance sheet for the bank, with assets and liabilities, and calculate the banks net worth.arrow_forwardConsider the following scenario for a bank. It has $200 in reserves, $800 in loans, $400 in securities, $1200 in deposits, and S100 in debt. a) Calculate the bank's capital. b) Calculate the bank's leverage ratio. c) Suppose there is a stock market boom, so that the bank's assets increase by 2 percent. What is the percentage change in the bank's capital? What is the change in the bank's capital in dollars? d) Suppose that, instead of stock market boom, some borrowers default on their debt so that the bank's assets decrease by 2 percent. How much is now the bank's capital?arrow_forwardExplain the role of capital in protecting a bank from insolvency.arrow_forward
- Assuming that the reserve ratio is 10%, what amount of excess reserves are held by with the bank balance sheet listed below? Assets Liabilities & Net Worth Reserves $280,000 Checking deposits $2,800,000 Loans Outstanding $2,920,000 Total $3,200,000 Net Worth Stockholders' Equity $400,000 Total $3,200,000 a. $240,000 b. zero c. $320,000 d. $280,000arrow_forwardA commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively: Select one: a. $30,000 and $150,000 b. $50,000 and $250,000 c. $50,000 and $500,000 d. $100,000 and $500,000arrow_forwardThe Oxnard City Bank has deposits of $800 million. It has reserves of $80 million and $300 million government bonds. The Oxnard City bank also owns $750 million loans. What is the value of the Oxnard City Bank’s total liabilities in millions?arrow_forward
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