Blank #1: provide high returns, discourage excessive ATM use, or reduce risk Bla

Question

Blank #1: provide high returns, discourage excessive ATM use, or reduce risk

Blank #2: diversification, charging high fees, compound interest

Blank #1: increases or decreases

Blank #2: checkable deposits, reserves, loans, building and furniture, or net worth

Suppose a group of investors pooled $750,000 and founded Best National Bank in Trenton, NJ. Best National Bank used $75,000 of this to purchase shares in the Philadelphia Federal Reserve Bank. With the remaining $675,000, the bank manager purchased a building, furniture, and equipment for the bank. Use the preceding information to complete the following table showing Best National Bank's balance sheet. Best National Bank's Balance Sheet Bank's Balance Sheet Assets Liabilities and Net Worth Total Total Now Maria Rossi opens a new checking account at Best National Bank and makes an initial deposit of $250,000 in currency. Fill in the following table to show Best National Bank's balance sheet just after Maria's deposit. Best National Bank's Balance Sheet Assets Liabilities and Net Worth Total Total One way in which banks, as financial intermediaries, create value for depositors such as Maria is that they through

Explanation / Answer

a) Balance sheet at introduction Assets Liabilities & Net Worth Investment in Shares of federal Reserve Bank 75000 Owners Equity 750000 Property, plant & equipment 675000 Total 750000 Total 750000 b) Balance sheet after deposit of cash by customer Assets Liabilities & Net Worth Cash 250000 Checkable Deposits 250000 Investment in Shares of federal Reserve Bank 75000 Owners Equity 750000 Property, plant & equipment 675000 Total 1000000 Total 1000000

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