Question: 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

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.

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

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