Fill in the Bank of Upland’s Balance Sheet numbers as of the start of business o
ID: 1202437 • Letter: F
Question
Fill in the Bank of Upland’s Balance Sheet numbers as of the start of business on October 2, 2007 for the categories found below. Start with the numbers in Part 1 above and incorporate the fact that the Federal Reserve (using Open Market Operations) had just sold $50 million worth of Treasury Bonds (T-bonds) to the Bank of Upland. Using a Word Table might help.
Bank of Upland
Vault Cash Demand Deposits
Treasury Bonds
Car Loans
Business Loans
Credit Card Loans
On Deposit at the Fed
in Mortgages
Assets
Liabilities
$50 million Vault Cash
$300 million Demand Deposits
$130 million Treasury Bonds
$45 million Car Loans
$10 million Business Loans
$30 million Credit Card Loans
$10 million On Deposit at the Fed
$25 million in Mortgages
Total = $300 Million
Total = $300 Million
A. Bank of Upland’s Total reserves as of October 1, 2007 = Vault Cash + On Deposit at the Fed
b) Calculate the Bank of Upland’s Total Reserves as of October 2, 2007 (please show/explain how you got your answer).
c) Calculate the Bank of Upland’s Required Reserves as of October 2, 2007 (please show/explain how you got your answer).
d) Calculate the Bank of Upland’s Excess Reserves as of October 2, 2007 (please show/explain how you got your answer).
e) Calculate the Bank of Upland’s Money Creating Potential throughout the entire Banking System as of October 2, 2007 (please show/explain how you got your answer).
f) Explain the reason the Federal Reserve would BUY these T-bonds from the Bank of Upland and explain what the Federal Reserve is worried about. (In other words, what economic condition is the Fed trying to avoid and how would the bond purchase help the Fed to avoid this economic condition.) You must use numbers to support your answer to receive credit.
g) Explain how the Fed would use two other monetary tools to help support its Open Market Purchase above. Explain how these tools would be used and how they would have an impact on the Marco economy.
Assets
Liabilities
$50 million Vault Cash
$300 million Demand Deposits
$130 million Treasury Bonds
$45 million Car Loans
$10 million Business Loans
$30 million Credit Card Loans
$10 million On Deposit at the Fed
$25 million in Mortgages
Total = $300 Million
Total = $300 Million
Explanation / Answer
total deposit= vault cash + deposit at FED= 50 + 10 =60
reserve ratio= 50/300=1/6, required reserve= 1/6 * 300=50
excess reserve= legal reserve - required reserve =60-50=10
money creating potential= excess reserve / reserve ratio = 10 / 1/6 = 60
fed wants to increase money supply in the market . this can achieved by buying T bonds
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