he following and addtoid DISCUSSION QUESTIONS 1. Explain why merchants accepted
ID: 1113356 • Letter: H
Question
he following and addtoid DISCUSSION QUESTIONS 1. Explain why merchants accepted gold receipts as a means of 4. payment even though the receipts were issued by gold smiths, not the government. What risk did goldsmiths in troduce into the payments system by issuing loans in the form of gold receipts? LO33.1 2. Why is the banking system in the United States referred to as a fractional reserve bank system? What is the role of de- 5 posit insurance in a fractional reserve system? LO33.1 What is the difference between an asset and a liability on a bank's balance sheet? How does net worth relate to each? why must a balance sheet always balance? What are the major assets 6 and claims on a commercial bank's balance sheet? LO33.2 3. 14Explanation / Answer
1. Merchant accepted gold receipt as a means of payment even though the receipt were issued by government as, gold was always a precious metal which never lost its value. Secondly income tax could have been exempted as there would be no records of having any money or currency transaction.
Goldsmith introduced the risk of public exploitation as there is limit of having interest in non governmental organisations.
2.
The banking system in the United States is referred to as a fractional reserve bank systembecause “only a portion (fraction) of checkable deposits are backed up by the reserves ofcurrency in bank vaults or deposits as the central bank”.The reserve ratio is the commercial bank’s required reserves divided by the commercialbank’s checkable-deposit liabilities.Deposit insurance is important in the case of runs on banks.“By guaranteeing deposits, deposit insurance helps to prevent the sort of bank runs that used tohappen so often before deposit insurance was available”
3.An asset of a commercial bank is something or owned by the bank or owned to the bank, example cash, securities, loans etc. A liability of a bank is a claim against the bank by non owners{ eg, checkable deposits etc.} And the owner of the bank. This listed liability is the net worth of the bank. The balanced sheet must be balanced by definition. That is the sum of asset must equal to the sum of liablities plus net worth for the bank to ensure appropriate accounting of Transactions.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.