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In: Economics

NewBank started its first day of operations with $141million in capital. A total of $290 million...

NewBank started its first day of operations with $141million in capital. A total of $290 million in checkable deposits is received. The bank makes a $25 million commercial loan and another $28 million in mortgage loans. The required reserve ratio (rr) is 7.2 %. NewBank decides to invest in 30-day T-bills for the remaining amount of money. How much T-Bills do they purchase? Note: Round your answer to the nearest whole number.

Amount of t-bills purchased=

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Expert Solution

Capital = $141 million

Checkable deposits = $290 million

Required reserve ratio = 7.2% or 0.072

Required reserves = Checkable deposits * Required reserve ratio = $290 million * 0.072 = $20.88 million

Commercial loans = $25 million

Mortgage loans = $28 million

Calculate the amount of money to be invested in 30-day T-bills -

Amount of money to be invested in 30-day T-bills = Capital + Checkable deposits - Required reserves - Commercial loans - Mortgage loans

Amount of money to be invested in 30-day T-bills = $141 million + $290 million - $20.88 million - $25 million - $28 million = $357.12 million

Thus,

NewBank has decided to invest $357 million in 30-day T-bills.

Rahul Sunny answered 2 years ago
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