ECO102(FDS)

Assignment3
by6thAugustinclass(Hardcopy)

Question1:

ThetablebelowshowsthebalancesheetforPrimeBank,whichcurrentlyhasnoexcessreserves,
(Banksreserveratio=targetreserveratio).(Assumefixedtargetreserveratioandnocashdrain).

BalanceSheet:PrimeBank
Assets
Liabilities
Reserves
200
Deposits
4200
Loans

4200

Shareholder'sEquity

400

GovernmentSecurities

200

4600

4600

a. Computetherequiredreserveratiointhisbankingsystem.
b. Whatdoestheshareholders'equityrepresentinthebalancesheetabove?
c. SupposetheBangladeshBankpurchasedallgovernmentsecuritiesPrimeBankhadheld.
Completethenewbalancesheetbelowshowingtheimmediateeffectoftheopenmarket
purchaseonthebalancesheetbelow.

Reserves
Loans

BalanceSheet:PrimeBank
Assets
Liabilities
?
Deposits
?

GovernmentSecurities ?

Shareholder'sEquity

d. WhatwillbetheRegalBanksnewreserveratio?
e. HowmuchofnewloanscanbemadebyPrimeBankafterBangladeshBankpurchasedall
governmentsecuritiesfromPrimeBank?(Hint:nocalculationisrequired)

Question2:
Considerthatoneofyourclassmates,Nusrat,migratestoChicago,USA,andtakes$5000withher.After
settlingdown,sheopenedabankaccountwithStandardCharteredBank(SCB)USAanddepositedthere
the$5000shetookwithherself.AssumeallcommercialbanksinUSAhaveatargetreserveratioof10%
andthereisnocashdrain.

a) Is$5000shedepositsanewdeposittoAmericanbankingsystem?Why?
b) StartingwithSCB,letsassumethemoneycirculatesinfourbanksTDbank,ScotiaBank,HSBC
bank.Completethefollowingtable:

Additionto
Bank
Deposit reserve
Loan
SCB
5000

TD

Scotia

HSBC

c) Computemaximumchangesof(i)deposits,(ii)reserves,and(iii)moneycreatedoutofthinair
(loan)intheUSbankingsystem.

Instructions:
1. Youarerequiredtosubmityourassignmentsbythe6thofAugustinclass(youmaysubmitearlier
thanthedeadlineifyouwishbutnolatesubmissionswillbeaccepted).
2. Onlyhardcopiesoftheassignmentwillbeaccepted.(Itcanbehandwrittenortyped)
3. Makesureyouwritetheformulaandshowpropercalculationstoavailpartialmarkingincaseyou
endupwithwronganswers.
4. Anyformofacademicdishonestywillimmediatelyqualifyforcancellationoftheassignment.
5. Donotskipanyquestion.Tryyourbesttoanswerall.
6. Youcanemailmeormeetmeinmyofficeifyouhaveanyquestions.

HAVEFUN!