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QUESTION: YOUR BANK HAS THE FOLLOWING BALANCE SHEET: Assets                                             Liabilities                          Reserves     $   50 million              Checkable deposits         $200 million Securities        50 million              Loans             150 million              Bank capital                     50 million IF...

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Finance

QUESTION: YOUR BANK HAS THE FOLLOWING BALANCE SHEET:

Assets                                            Liabilities                         

Reserves     $   50million             Checkable deposits        $200 million

Securities        50million             

Loans            150million             Bankcapital                    50 million

IF THE REQUIRED RESERVE RATIO IS 10%, WHAT ACTIONS SHOULD THEBANK MANAGER TAKE IF THERE IS AN UNEXPECTED DEPOSIT OUTFLOW OF $50MILLION?

Answer & Explanation Solved by verified expert
4.5 Ratings (705 Votes)

BANK HAS THE FOLLOWING BALANCE SHEET:

Assets                                             Liabilities                         

Reserves     $   50 million              Checkable deposits         $200 million

Securities        50 million             

Loans             150 million              Bank capital                     50 million

Transaction: UNEXPECTED DEPOSIT OUTFLOW OF $50 MILLION

Balance sheet after transaction:

Assets                                             Liabilities                         

Reserves     $ 0 million              Checkable deposits         $150 million

Securities $ 50 million             

Loans $ 150 million              Bank capital                     50 million

Required reserve ratio = 10%

Therefore required reserve = $ 150 million x 10% = $ 15 million

Therefore, bank manager should sell securities of $ 15 million and keep it in reserves to meet the requirement of minimum reserve ratio.
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QUESTION: YOUR BANK HAS THE FOLLOWING BALANCE SHEET:Assets                                            Liabilities                         Reserves     $   50million             Checkable deposits        $200 millionSecurities        50million             Loans            150million             Bankcapital                    50 millionIF THE REQUIRED RESERVE RATIO IS 10%, WHAT ACTIONS SHOULD THEBANK MANAGER TAKE IF THERE IS AN UNEXPECTED DEPOSIT OUTFLOW OF $50MILLION?

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