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Assignment3
by6thAugustinclass(Hardcopy)
Question1:
ThetablebelowshowsthebalancesheetforPrimeBank,whichcurrentlyhasnoexcessreserves,
(Banksreserveratio=targetreserveratio).(Assumefixedtargetreserveratioandnocashdrain).
BalanceSheet:PrimeBank
Assets
Liabilities
Reserves
200
Deposits
4200
Loans
4200
Shareholder'sEquity
400
GovernmentSecurities
200
4600
4600
a. Computetherequiredreserveratiointhisbankingsystem.
b. Whatdoestheshareholders'equityrepresentinthebalancesheetabove?
c. SupposetheBangladeshBankpurchasedallgovernmentsecuritiesPrimeBankhadheld.
Completethenewbalancesheetbelowshowingtheimmediateeffectoftheopenmarket
purchaseonthebalancesheetbelow.
Reserves
Loans
BalanceSheet:PrimeBank
Assets
Liabilities
?
Deposits
?
GovernmentSecurities ?
Shareholder'sEquity
d. WhatwillbetheRegalBanksnewreserveratio?
e. HowmuchofnewloanscanbemadebyPrimeBankafterBangladeshBankpurchasedall
governmentsecuritiesfromPrimeBank?(Hint:nocalculationisrequired)
Question2:
Considerthatoneofyourclassmates,Nusrat,migratestoChicago,USA,andtakes$5000withher.After
settlingdown,sheopenedabankaccountwithStandardCharteredBank(SCB)USAanddepositedthere
the$5000shetookwithherself.AssumeallcommercialbanksinUSAhaveatargetreserveratioof10%
andthereisnocashdrain.
a) Is$5000shedepositsanewdeposittoAmericanbankingsystem?Why?
b) StartingwithSCB,letsassumethemoneycirculatesinfourbanksTDbank,ScotiaBank,HSBC
bank.Completethefollowingtable:
Additionto
Bank
Deposit reserve
Loan
SCB
5000
TD
Scotia
HSBC
c) Computemaximumchangesof(i)deposits,(ii)reserves,and(iii)moneycreatedoutofthinair
(loan)intheUSbankingsystem.
Instructions:
1. Youarerequiredtosubmityourassignmentsbythe6thofAugustinclass(youmaysubmitearlier
thanthedeadlineifyouwishbutnolatesubmissionswillbeaccepted).
2. Onlyhardcopiesoftheassignmentwillbeaccepted.(Itcanbehandwrittenortyped)
3. Makesureyouwritetheformulaandshowpropercalculationstoavailpartialmarkingincaseyou
endupwithwronganswers.
4. Anyformofacademicdishonestywillimmediatelyqualifyforcancellationoftheassignment.
5. Donotskipanyquestion.Tryyourbesttoanswerall.
6. Youcanemailmeormeetmeinmyofficeifyouhaveanyquestions.
HAVEFUN!