Question

Suppose Bob has a truck worth 47 and agrees to sell it to Matt for that amount. To purchase the truck Matt goes to his bank and requests a loan. Matt's bank agrees to offer Matt a loan requiring him to pay 70 at the end of the year. Assume both Bob and Matt have different banks. However, Matt's bank does not have the reserves it needs to pay Bob's bank so it goes to the interbank market. But no other bank is willing to lend to Matt's bank. The only option for Matt's bank is to borrow from the central bank. Suppose after transferring the newly acquired reserves to Bob's bank, Matt's bank still has a loan with the central bank worth 10 What is Matt's bank change in net worth?

Answer 1

Cost Of the Truck = 47

Amount required by Matt = 47

Amount payed By Matt to the bank = 70

Intrest payed by Matt= 70-47=23

Matt's Bank needs to transfer=47

Since Matt's bank took loan some loan from central Bank it has to pay it back .

It is given after the transfer of funds from Matt's bank to Bob's bank matt's bank owe 10 to the central bank .

Net worth of Matt's bank in this case = Intrest payed by Matt - amount owed to the central Bank

=23-10

=13

Net Worth of Matt's Bank increases by 13