Question
In: Finance
QUESTION: YOUR BANK HAS THE FOLLOWING BALANCE SHEET: Assets &nb
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 THE REQUIRED RESERVE RATIO IS 10%, WHAT ACTIONS SHOULD THE BANK MANAGER TAKE IF THERE IS AN UNEXPECTED DEPOSIT OUTFLOW OF $50 MILLION?
Solutions
Expert Solution
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.
jeff jeffy answered 1 year agoRelated Solutions
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____________________________________________________________________
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______________________________________________________________________
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