EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Question
Chapter 21, Problem 6PA
Sub part (a):
To determine
The
Sub part (b):
To determine
The balance sheet and leverage ratio of the bank.
Sub part (c):
To determine
The balance sheet and leverage ratio of the bank.
Subpart (d):
To determine
The balance sheet and leverage ratio of the bank.
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2. Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5% (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans.
A.) Show the balance sheet of Happy Bank.B.) What is Happy Bank’s leverage ratio?C.) Suppose that 10% of the borrowers from Happy Bank default and these bank loans become worthless. Show the bank’s new balance sheet.
Please only answer part D
D.) By what percentage do the bank’s total assets decline? By what percentage does the bank’s capital decline? Which change is larger? Why?
The table below, shows the balance sheet of the Bruins Bank.
Assets
Reserves
Loans
Securities
Fixed assets
Total
$30
240
90
40
400
Liabilities/Equity
Demand Deposits
Shareholders' equity
Total
$360
40
400
By how much is the Bruins Bank over- or under-reserved if the target reserve ratio is as listed below.
a. If the target reserve ratio is 2.5% the Bruins Bank is over-reserved
b. If the target reserve ratio is 5.0% the Bruins Bank is over-reserved
c. If the target reserve ratio is 7.5% the Bruins Bank is over-reserved
d. If the target reserve ratio is 12.5% the Bruins Bank is under-reserved
v
by $
by $
by $
by $
The table below is the balance sheet for the Oilers Bank, which has a target reserve ratio of 5%.
Liabilities/Equity
Demand Deposits
Shareholders' equity
Assets
Reserves
Loans
Securities
Fixed assets
Total
$3,000
34,000
8,500
4,500
50,000
Total
$40,000
10,000
50,000
a. The Oilers Bank is over-reserved by $
b. The bank makes a loan equal to the excess reserves and the borrower writes a cheque (for the full amount of the loan) to another
customer of the bank, who then deposits it.
The new amount of excess reserves is $
c. Instead, the cheque written by the borrower is cleared against the Oilers Bank (the cheque was written to a customer of another
bank).
The amount of excess reserves held by the Oilers Bank is $
Chapter 21 Solutions
EBK ESSENTIALS OF ECONOMICS
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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- Why do we call a bank a financial intermediary?arrow_forwardExplain how a bank could optimise its position through managing its use of different financial products.arrow_forwardUse the information presented in Midwestern Mutual Bank's balance sheet to answer the following questions. Bank's Balance Sheet Assets Liabilities and Owners' Equity Reserves $150 Deposits $1,200 Loans $600 Debt $200 Securities $750 Capital (owners' equity) $100 Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and the асcount. This would also bring the leverage ratio from its initial value of to a new value of Which of the following do bankers take into account when determining how to allocate their assets? Check all that apply. The size of the monetary base The total value of liabilities The return on each assetarrow_forward
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- Use the information presented in Southwestern Mutual Bank's balance sheet to answer the following questions. Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and the account. his would also bring the leverage ratio from its initial value of to a new value of . Which of the following do bankers take into account when determining how to allocate their assets? Check all that apply. The riskiness of each asset The total value of liabilities The size of the monetary basearrow_forwardComplete the table below for the Third National Bank. You have to distinguish between a bank's assets and bank's liabilities. The figures in the table below are for the Third National Bank. All figures are in thousands of dollars.arrow_forwardWhat is Supplies of Liquid Funds? What are Laws Limiting Bank Lending and Risk?arrow_forward
- The table below is the balance sheet for all banks combined in the banking system. All banks have a target reserve ratio of 2.5%. Assets Reserves Loans Securities Fixed assets Total $160,000 $ 5,226,500 675,000 688,500 6,750,000 Liabilities/Equity Demand Deposits Shareholders equity Total $6,075,000 $ 675,000 6,750,000 a. The amount of excess reserves is $ b. The maximum amount that loans and deposits could be increased by is $ c. Assume that the system becomes fully loaned up. Show the new balance sheet in the table above. d. Now that the system is fully loaned up, the money supply will have increased by $arrow_forwardUse the information presented in Northeastern Mutual Bank's balance sheet to answer the following questions. Bank's Balance Sheet Assets Liabilities and Owners' Equity Reserves $175 Deposits $1,400 Loans $700 Debt $225 Securities $875 Capital (owners' equity) $125 Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and the account. This would also bring the leverage ratio from its initial value of to a new value of Which of the following do bankers take into account when determining how to allocate their assets? Check al that apply. The reserve requirement The size of the maonetary base O The total value of liabilitiesarrow_forwardAssuming 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_forward
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