Question

In: Finance

Suppose that the bank sells $5 million in securities to get new cash. Show the bank’s...

Suppose that the bank sells $5 million in securities to get new cash. Show the bank’s balance sheet after this transaction. What are the bank’s excess reserves?

Solutions

Expert Solution

Since the bank intends to sell securities worth $5 million, the proceeds will add to the reserves.

Now, the reserves will be $20.9 million and the excess will be at $5 million.

Bank Balance Sheet (Amounts in millions of dollars)
Assets Liabilities + Capital
Reserves 20.9 Transaction accounts 180.0
Securities 29.1 Capital 20.0
Loans 150.0
Total Assets 200.0 Total liabilities + capital 200.0

ASSUMPTION-

Assets Liabilities + Capital
Reserves $ 15.9 Transactions deposits $180.0
Loans $150.0 Equity Capital $20.0
Securities $34.1
Total $200.0 Total $200.0

jeff jeffy answered 2 years ago
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