The Fed conducts an open market operationand increase a bank's excess reserves by$7,000. Explain the first five rounds of the moneycreation process if the desired reserve ratio is20% and if people keep no currency outside ofthe banking system. (5 points)Rounds DepositsReservesLoans1$7,000$1,400$5,6002$5,600$1,120$4,480345$4,480 $896$3,584$3,584 $716.8$2,867.2$2,867.2 $573.44 $2,293.76

Round 1: Bank earns $7,000 for extra reserves. The bank must hold $1,400 ($7,000 * 20%) as reserves…

Answered: The Fed conducts an open market…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 2P

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Bank A just received total deposit equal to $30,700,000.00. Required reserve ratio for the banking system is set at 2.1%, (or 0.021). a. How much of the total deposit can bank A lend out? In other words, what is bank A's excess reserve? $ b. By how much will total money supply change if bank A, and all subsequent banks, are able to lend out their entire excess reserves as the result of the initial $30,700,000.00 deposit in bank A? $
Assume that banks holds no excess reserves and the public holds no currency: A. If a bank receives a deposit inflow of $100,000 explain (using t-accounts) what happens to this bank and one additional round in the deposit creation process assuming the reserve requirement is 8%. B. How much do deposits and loans change for the banking system when the process is completed? Show computation and the entire banking system's final T-account. C. Suppose the Central Bank sells $5 billion to ABC Bank. Determine what happens to checkable deposits of the entire banking system after the sale and completion of the multiple deposit creation process. Determine the change in checkable deposit in the banking system and show the T-account of the banking system.
Assume that the reserve ratio is 23 percent and banks in the system are loaning out all their excess reserve. If people collectively deposit mil. $200 million to their checking accounts, then the lending ability of the banking system will increase by $ Round to the nearest million. For example, if your answer is $1234.56 million, then enter "1235" in the box. Margin of error: +/- 10.
A new bank has vault cash of $1.7 million and $5 million in deposits held at its Federal Reserve District Bank. a) the required reserves ratio is 8 percent, approximately what dollar amount of deposits can the bank hold? (Answer in millions) Bank deposits $Type your answer here million b) If the bank holds $72 million in deposits and currently holds bank reserves such that excess reserves are zero, what required reserves ratio is implied? (Round answer to 1 decimal place, e.g. 5.1.) Required reserves ratio Type your answer here
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Imagine that the banking system's balance sheet can be represented by the following t-account: Assets LIABILITIES AND NET WORTH RESERVES 200 DEPOSITS 2000 BONDS 800 LOANS 1000 NETWORTH 0 TOTAL 2000 TOTAL 2000 Assuming the bank is "loaned up" the required reserve ratio is ___________ (round to two decimal places) The money multiplier is ___________ Imagine that the central bank uses open market operations to buy $300 worth of bonds from the bank above. Fill in the following t-account assuming that the money multiplier has taken its full effect: ASSETS LIABILITIES AND NET WORTH RESERVES __?___ DEPOSITS ___?__ BONDS ____?___ LOANS ____?____ NET WORTH ___?___ TOTAL _____?______ TOTAL ___?___
Examine the Falance sheet for a bank below: Assets Liabilities Reserves 600 000 Demand Deposits 5 230 000 Loans 2 000 000 Capital 1 250 000 Buildings 3 880 000 If the desired reserve ratio changes to 5 percent and the bank were to loan out those excess reserves, what is the otential expa nsion in demand deposits (increase in MS) in the banking system? ***You just need to put the number in your answer, no units or commas*** Answer:
Consider the U.S. banking system in 2007. Assume that the required reserve ratio is 10%, that there are no cash leakages, and that banks hold zero excess reserves. Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. As a result, Bank A finds itself with $1,000 in excess reserves that it lends out and those funds end up in Bank B. Q с D A) $1,000 B $900 Bank $990 A B Increase in Checkable Deposits $0 $1,000 $810 I New Required Reserves $0 LA $90 Refer to Table 13-1. What are the new checkable deposits created by extending new loans for Bank B? New Checkable Deposits Created by Extending New Loans $1,000
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2. A bank (banking system) has reserves of $700,000; advances of $1300,000 and deposits of $2,000,000 and is fully loaned-up. The Federal Reserve now buys $1m worth of bonds through its open market operations. What will the change in balances be in the balance sheet after two rounds of lending? What will the final (aggregate) balances be after the full credit creation process?
Q2) Suppose $150 of currency is in circulation. What is the banks’ impact on money supply?Calculate the money supply in case of Fractional reserve banking system. Pretend the Reserve Ratio is by 2.5%. 1. Borrowers first withdrew the loan from 1st National Bank and deposited it in 2nd National Bank. 2. Borrowers Took The Loan from 2nd National Bank and Deposited it in 3rd National Bank 3. Then Borrowers withdrew finally the loan from 3rd National Bank and deposited it in 4th National Bank. Questions: A. Open a T Account for each Bank with the previous situations. B. Show the Impact on money supply (How much the $150 of reserves had generated?)
Consider a bank with the following balance sheet Assets Liabilities Required reserves Excess reserves T-bills Commercial loans $ 9 million Checkable deposits $ million Bank capital $ 44 million $ 52 million $ 100 million $ 10 million The bank makes a loan commitment for $15 million to a commercial customer. Before the commitment, the bank's capital ratio equals%. (Round your response to two decimal places.)

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