3. Assume that the banking system as a whole has the following consolidated bala

Question

3. Assume that the banking system as a whole has the following consolidated balance sheet and that the required reserve ratio for demand deposits is 15 percent while that for time deposits is 5 percent. $ 50,000 Demand deposits Cash Federal Reserve account 180,000 Loans Securities Other $1,000,000 1,000,000 250,000 Time deposits 1,500,000 Other 500,000 20,000 a. What are the excess reserves of the banking system? b. Assuming no cash drain, no change in time deposits, and that the banks do not willingly hold any excess reserves, what is the maximum increase in the money supply that the system can now create? 4. Carefully discuss the avenues open to a single bank with a reserve defi- ciency for eliminating that deficiency 5. "If a single bank has a $100,000 reserve deficiency, the sale of $100,000 of U.S. securities to the nonbank public will normally (but not always) eliminate the deficiency. Such action will not, however, eliminate a $100,000 reserve deficiency of the banking system as a whole. a. Using T-accounts, show how such a sale by Bank A would normally eliminate its deficiency. Under what circumstance would it not do so? b. Explain carefully why such a sale could not eliminate the banking sys- tem's deficiency. If the banking system as a whole has a reserve deficiency and cannot ac- quire more total reserves, the result must be a multiple contraction of de- mand deposits and loans or securities." Explain. 6. " 7. What are federal funds?

Explanation / Answer

7) Federal funds are money's held by banks at the Federal Reserve to meet reserve requirements. Funds in excess of reserve requirements can be loaned to other banks in order for those banks to meet reserve requirements.

Federal funds loans are unsecured and are for very short periods, typically overnight.They are usually made through brokers who specialize in such transactions, or they are arranged directly between the banks themselves.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.