Question

flew by SAT 1 In the following bank balance sheet, amounts are in millions of dollars. The required reserve ratio is 4% on the first $30 million of checkable deposits and 14% on any checkable deposits over $30 million. Assets Liabilities Reserves $26.5 Checkable deposits $180.0 Loans $150 Net worth $20.0 Securities $23.5 Total $200 Total $200 a. Calculate the bank's excess reserves. Excess reserves are 5 million (Enter your response rounded to one decimal place.) b. Suppose that the bank sells $5 million in securities to get new cash. Show the banks balance sheet after this transaction. (Enter your responses rounded to one decimal place) Assets Liabilities Reserves Checkable deposits Loans Net worth Securities 8 What are the bank's new excess reserves? Excess reserves are $milion (Enter your response rounded to one decima place) c. Suppose that the bank loans all its excess reserves in part (b) to a local business. Show the bank's balance sheet after the loan has been made but before the business has spent the proceeds of the loan (Enter your responses rounded to one decimal place) Enter your answer in each of the answer boxes

Answer 1

Requred reserve upto 30 million = 4% * 30 million

=1.2 million

After 30 million = 180 - 30 = 150

14% * 150 million

= 21 million

Total = 21 + 1.2 = 22.2 million

Excess reserve = Actual reserve - required reserv

= 26.5 - 22.2 = 4.3 million

After the bank sells $5 million of securities, its reserves will increase by $5 million and its securities will decrease by $5 million.

Assets	Liabilities
Reserves	$31.5	Checkable deposit	$180.0
Loans	$150.0	Net worth	$20.0
Securities	$18.5
Total	$200.0	Total	$200.0

Requires reserve = 22.2 million

Actual reserve = 31.5 million

Excess reserve = 31.5 - 22.2 = 9.3 million

c After the bank loans out the excess reserve of 9,3 million, its reserve will decrease by 9.3 million and loans will increase by 9,3 million

Assets	Liabilities
Reserves	$22.2	Checkable deposit	$180.0
Loans	$159.3	Net worth	$20.0
Securities	$18.5
Total	$200.0	Total	$200.0

Now that the bank loaned out its excess reserve, excess reserve is 0

d. Now the money came back to the bank, checkable deposit will increase and reserves will increase by 9.3 million

Assets	Liabilities
Reserves	$31.5	Checkable deposit	$189.3
Loans	$159.3	Net worth	$20.0
Securities	$18.5
Total	$209.3	Total	$209.3

Requires reserve up to 30 million = 1.2 million

After 30 million = 189.3 - 30 = 159.3 million

= 14%* 159.3 million

= 22.302

Requires reserve = 1.2 + 22.302

= 23.5 million

Actuel reserve = 31.5 million

Excess reserve = 31.5 - 23.5 = $8 million