2. (30pts) Below is the balance sheet of Bank of Joe (BOJ). Cash, stocks & bonds,...

Transcribed Image Text:

2. (30pts) Below is the balance sheet of Bank of Joe (BOJ). Cash, stocks & bonds, and treasures are considered as liquid asset, which can be sold at any time at full price. Long term assets and other illiquid assets can be sold at 50% of full price. The Bank must hold at least 10% of their deposit as cash in Vault. Asset Cash in Vault 40K (10% of deposit) 100K Stoc and Bonds Treasures 50K Long term assets 370K Other illiquid 140K assets BOJ Liability Deposit 400K Loan from another 100K bank Shareholder Equity 200K Discuss which entries need to be adjusted if the following transaction happens • Additional 100K deposits comes in and BOJ invests it in the stock market. • BOJ is considering to pay out the 100K outstanding loan (on the liability side) by selling long term assets. • Depositors withdraw 100K and BOJ would like to cater to the demand using cash (without violating the reserve requirement) and then stocks and bonds. • If all of depositors withdraw their money, will BOJ run into insolvency? 2. (30pts) Below is the balance sheet of Bank of Joe (BOJ). Cash, stocks & bonds, and treasures are considered as liquid asset, which can be sold at any time at full price. Long term assets and other illiquid assets can be sold at 50% of full price. The Bank must hold at least 10% of their deposit as cash in Vault. Asset Cash in Vault 40K (10% of deposit) 100K Stoc and Bonds Treasures 50K Long term assets 370K Other illiquid 140K assets BOJ Liability Deposit 400K Loan from another 100K bank Shareholder Equity 200K Discuss which entries need to be adjusted if the following transaction happens • Additional 100K deposits comes in and BOJ invests it in the stock market. • BOJ is considering to pay out the 100K outstanding loan (on the liability side) by selling long term assets. • Depositors withdraw 100K and BOJ would like to cater to the demand using cash (without violating the reserve requirement) and then stocks and bonds. • If all of depositors withdraw their money, will BOJ run into insolvency?