Question 5

Suppose the following table shows the balance sheet for a chartered bank. Assume that the bank has achieved its target reserve ratio.

 

                                       Balance Sheet: Regal Bank

                        Assets                                                  Liabilities

Reserves       $  730                                         Deposits                      $5000

Loans          $4900                                         Capital (Net Worth)    $  630

5.1 Calculate the bank’s target reserve ratio.

 

5.2 Calculate the value of the owners’ investment in the bank. 

 

 

5.3 Given your answer in [5.1] and assuming zero cash drain, compute the deposit multiplier.

 

 

5.4 Given your answer in [5.1], suppose that 8 percent of the new reserves are held in the form of currencies, calculate the money multiplier.

 

 

5.5 Given your answer in [5.1] calculate the amount of excess reserves.

 

 

5.6 Assuming a new deposit in the bank has been made in the amount of $1,400. Write the new balance sheet showing the immediate effect of the new deposit. Calculate the bank’s new target reserve ratio.

Answer rating: 100% (QA)

51 Target reserve ratio rr Reserves Deposits 730 5000 0146 146 52 Owners investment Capital n... View the full answer