Why the customer spends the proceeds of the loan

Reference no: EM13213911

The balance sheet of a bank follows. Suppose that the reserve requirement is 3 percent on the first $30 million of checkable deposits and 10 percent on checkable deposits in excess of $30 million. (Amounts on the balance sheet are in millions of dollars.) Assets Reserves $15.90 Loans $150.00 Securities $34.10 Total $200.00 Liabilities + Capital Transactions deposits $180.00 Equity capital $20.00 Total $200.0

a. Calculate the bank's excess reserves.

b. Suppose that the bank sells $5 million in securities to get new cash. Show the bank's balance sheet after this transaction. What are the bank's excess reserves?

c. Suppose that the bank makes a loan to a customer equal to the amount of its excess reserves from part b. Show the bank's balance sheet before the customer spends the proceeds of the loan. What are the bank's excess reserves?

d. Now suppose that the customer spends the proceeds of the loan. Show the bank's balance sheet, and calculate its excess reserves.

Reference no: EM13213911

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