Question 5 Suppose the following table shows the balance sheet for a chartered bank. Assume that the
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 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.