Julian Mayugba Professor Peter Cronrath ECO 201-ONB01 23 April 2017 Unit 4 AS2: Bank Deposits and Reserves (version A) [1] Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy’s deposit: a) Bank A’s reserves immediately increase by $10,000. Bank A’s reserves immediately increase by $10,000 because of Kristy’s $10,000 deposit. b) Bank A’s required reserves increase by $2,000. Bank A’s required reserve ratio is 20%; Multiplying the $10,000 reserve increase by 0.20 results in $2,000. c) Bank A’s excess reserves increase by $8,000. Bank A’s required reserve ratio is 20%. The required reserve is increased by $2,000. If we subtract …show more content…
that from the reserve increase of $10,000, we get $8,000. d) Bank A can make a maximum new loan of $8,000. The maximum amount of loans the bank can give out is equal to the excess reserve amount. e) Checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of $50,000. This is found by dividing the original deposit by the required reserve ratio: ($10,000 / 0.2) = $50,000. Assets Liabilities Reserves +$4,000 Deposits +$4,000 [2] Refer to the table above.
Suppose a transaction changes a bank’s balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of $3,600. This is found by taking the total reserves, and multiplying it by the required reserve ratio (10 percent). The resulting equation is $4,000 x 0.10 = $400. After finding the required reserve ratio, we must subtract the total reserves by the required reserve ratio to figure out what the excess reserves are. This equation is $4,000 - $400 = $3,600. [3] Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required to 15 percent, the bank will now have excess reserves of $5 million. This is found by multiplying the $100 million in checking account deposits by the initial required reserve ratio, 20 percent. The equation is $100 million x 0.20 = $20 million. After finding this, we must find the required reserve ratio for 15 percent. The equation is $100 million x 0.15 = $15 million. Since we have the values for both 20% and 15% required reserve, we can subtract the reserves. This equation is $20 million – $15 million = $5
million.
Prior to Fuller’s transfer, management at the Carson’s location was poorly run using the classical approach. While this approach can be successful, management has to find a good middle ground between caring for the company and caring about their employees. A traditional classical approach recognizes that there are five important factors to running a successful business (Miller, 19). According to text, these factors are planning, organizing, command, coordination and control (Miller, 19-20). These factors can be seen when you look at Third Bank as a whole. In the study, the CEO saw the issues in his company and put a plan together to improve. He had meetings with management, like fuller, to organize a solution. He then commanded all locations
ROA (return on assets) [(76684) + 70311] / 2262980 = (0.003) [38494 + 22608] /
taking the retention rate (b) and multiplying it by the return on equity (r ).
proportion of the total account. The main advantages of analyzing a balance sheet in this manner
To the extent that they are allowed, they will hold money in the market as long as the marginal benefit of an additional dollar in the market is greater than the marginal benefit of an additional dollar in reserves (or the binding legal minimum). That is, I assume banks optimize following the equi-marginal principle. This elementary economic insight highlights the fatal assumption of White’s extension of the Bailey Curve. The assumption is: the interest rate paid on deposits is less than the nominal market interest rate (or, at least, the risk-free rate). If this assumption holds, then White’s (1999) analysis holds. And, for most of the Federal Reserve’s history, interest on reserves was fixed at zero while the nominal, risk-free interest rate was above zero. Since 2008, however, the Federal Reserve has begun paying interest on reserves while at the same time pursuing a market rate at or near
The money supply can include cash, coins and balances held in checking and savings accounts.
of this cash in reserve in case they want it back they lend a large
As at 30 June 2016 the shareholders’ funds increased by 8.8% to reach RS 33 billion and there is an increase in equity which lead a growth of 9.3% in retained earnings after accounting for a cash dividend payment of Rs 2.1 billion. On the whole, testifying to its ability to withstand potential shocks and foster further business growth, the Bank maintained comfortable capitalisation levels. Indeed, overall capital adequacy ratio increased from 15.1% to 16.3%, with the Tier 1 ratio standing at 14.9% as at June
The requirement of retaining at least a minimum of $50,000 on cash applies to the concept that cash has more liquidity to offer.
Societies could be grouped into several economic segments. There are segments with surplus funds as well as in the same way there are those which have shortages and deficit. A financial system operates as an intermediary and acts as a medium to smoothen the flow of funds from the segments having surplus funds to the segments in deficit. The financial system is a combination and amalgamation of several institutions, regulations distinct markets, proceedings and demands, analysts and liabilities.
Before we start, it’s important to note here that it is not 15% to be added to 5% to make it a total of 20%.
Acid test ratio was below the rule of thumb 1.0 time in 2015 which indicates that it does not adequate quick assets to meet its current liability obligations. This could probably due to company in holding higher level of inventories. On the other hand, the company may apply for overdraft facilities to minimise the problem of low acid test ratio.
Each one bank has a requirement to keep an altered measure of store with themselves as security which could be as cash, important metals, embraced securities like treasury bills, bonds et cetera.
The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.
Therefore, change in foreign currency reserve (R) can restore or maintain money market equilibrium given that exchange rate is fixed.