Question

Draw a balance sheet for the Federal Reserve. Explain how each item fits under liabilities and assets for the Federal Reserve and how that is different from commercial banks.

Answer 1

FED ASSETS

a) Securities , majorly in the form of Treasuries;

b) Foreign exchange reserves, that include foreign bonds that are issued by international governments;

c) Loans advanced to commercial banks.

FED LIABILITIES

i) Currency held by the public

ii) Federal government's bank account, that is put to use as an individual's checking account, that is, for depositing earnings or other returns majorly in the form of taxation proceeds and also for payment of checks, in a computerized form;

iii) Commercial bank account, for maintainance of deposits with Federal bank.

Also, some cash is kept in the banks' vaults to meet the customer cash demands. This cash is a part of the commercial bank's reserves which is termed as Vault cash.

The federal bank has a set of assets and liabilities like any commercial bank in the nation. The assets of the federal bank are similar to commercial banks. However, the liabilities of the two, differ. The major liability of the federal bank is the currency in circulation and the reserves.

The commercial banks deposit with the federal bank, making it an assest for them. However, as the federal bank has to pay these back, it becomes its liability.

ASSETS	LIABILITIES
U.S. Treasury securities	Currency in circulation
Foreign Exchange	Federal goverment account
Loans	Deposits held by banks