1. Bank Ajanta has the following balance sheet: Assets Liabilities Reserves $ 60
ID: 2660717 • Letter: 1
Question
1. Bank Ajanta has the following balance sheet:
Assets
Liabilities
Reserves $ 60 million
Deposits $600 million
Loans $640 million
Bank capital $100 million
a. a) If the bank suffers a deposit outflow of $40 million, calculate reserve deficiency, assuming reserve requirements of 10 per cent.
b. Ib) If bank suffers a reserve deficiency, what actions can bank take to meet the reserve deficiency?
2. Bank Ajanta has the following balance sheet:
Assets
Liabilities
Reserves $ 100 million
Deposits $600 million
Loans $640 million
Bank capital $100 million
a) If the bank suffers a deposit outflow of $40 million, which balance sheet would it like, balance sheet in question 1 or 2, assuming reserve requirements of 10 per cent? Why?
Assets
Liabilities
Reserves $ 60 million
Deposits $600 million
Loans $640 million
Bank capital $100 million
Explanation / Answer
It will have deposts of 560 but reserves of only 20 so it will be 560*10-20= 36 deficient.
It can borrow reserves from the Fed or other banks in the short term. Longer term it can raise more capital.
2 because under 2 it would still have reserves (60) in excess of 10% of deposits (560*,10=56).
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