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Assume that there are two banks, A and Z in the banking system. Bank A receives a primary deposit of $600,000 and it must keep reserves of 12 percent against deposits. Bank A makes a loan in the amount that can be safely lent.

A. Show what Bank A's balance sheet of assets and liabilities would look like immediately after the loan

B. Assume that a check is drawn against the primary deposit made in Bank A and is deposited in Bank Z. Show what balance sheet of assets and liabilities would look like for each of the two banks after the transaction has taken place.

C. Now assume that Bank Z makes a loan in the amount that can be safely lent against the funds deposited in its bank from the transaction described in (b). Show what Bank Z's balance sheet of assets and liabilities would look like after the loan.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M943038

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