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In: Economics

Use the balance sheet below (for the friedman National Bank) to answer the next series of...

Use the balance sheet below (for the friedman National Bank) to answer the next series of questions. Assume the reserve requirement is 10% against DD and the capital requirement is 10%(of total assets)

Assets                                                                                                   Liabilities plus Capital

Cash                                                      $ 5,000              Demand Deposits (consumers)       $ 50,000

Federal Reserve account                       $ 35,000              Demand Deposits (Business Firms) $100,000

Securities                                            $ 60,000             Time and saving deposit                       $75,000

Loans                                                  $ 100,000               Capital                                                $ 25,000

Building                                                $ 50,000

Total                                                      $250,000             Total                                                              $ 250,000

Question 19, 20 and 21 are fill in questions, Indicate your answer in the space provided.

9. Friedman National has excess reserve of................................................

20. The maximum new loan that Friedman National can make without incurring a required reserve deficiency is............................................

21. Friedman National’s Holding of earning assets are:..........................................

Solutions

Expert Solution

Question 19

Total demand deposits = Demand deposits (consumers) + Demand deposits (Business firms)

Total demand deposits = $50,000 + $100,000 = $150,000

Reserve requirements = 10% or 0.10

Required reserves = $150,000 * 0.10 = $15,000

Total reserves = Cash + Federal reserve account = $5,000 + $35,000 = $40,000

Excess reserves = Total reserves - Required reserves = $40,000 - $15,000 = $25,000

So,

Friedman National has excess reserves of $25,000.

Question 20

A bank can lend an amount equal to excess reserves it held without incurring a required reserve deficiency.

Friedman National has excess reserves of $25,000.

So,

The maximum new loan that Friedman National can make without incurring a required reserve deficiency is $25,000.

Question 21

Earning assets are those that generates income for the owner. In case of bank, earning assets are investment securities, loans etc.

Calculate the value of earning assets for Friedman National -

Earning assets = Securities + Loans = $60,000 + $100,000 = $160,000

So,

Friedman National's holding of earning assets are $160,000.

Rahul Sunny answered 2 years ago
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