fin100 homework

1.       As the executive of a bank or thrift institution, you are faced with an intense seasonal demand for loans. Assuming that your loanable funds are inadequate to take care of the demand, how might your Reserve Bank help you with this problem?

2.      Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.

Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received.

b. Assume Bank A makes a loan in the amount that can be safely lent. Show what the bank’s balance sheet of assets and liabilities would look like immediately after the loan.

c. Assume that a check in the amount of the derivative deposit created in (b) was written and sent to another bank. Show what Bank A’s (the lending bank’s) balance sheet of assets and liabilities would look like after the check is written.

3. Assume a financial system has a monetary base (MB) of $25 million. The required reserves ratio is 10 percent, and no leakages are in the system.

    a. What is the size of the money multiplier (m)?

    b. What will be the system’s money supply?