Question

Use the balance sheet below (for the friedman National Bank) to answer the next series of questions. Assume the reserve requirement is 10% against DD and the capital requirement is 10%(of total assets)

Assets                                                                                                   Liabilities plus Capital

Cash                                                      $ 5,000              Demand Deposits (consumers)       $ 50,000

Federal Reserve account                       $ 35,000              Demand Deposits (Business Firms) $100,000

Securities                                            $ 60,000             Time and saving deposit                       $75,000

Loans                                                  $ 100,000               Capital                                                $ 25,000

Building                                                $ 50,000

Total                                                      $250,000             Total                                                              $ 250,000

Question 19, 20 and 21 are fill in questions, Indicate your answer in the space provided.

9. Friedman National has excess reserve of................................................

20. The maximum new loan that Friedman National can make without incurring a required reserve deficiency is............................................

21. Friedman National’s Holding of earning assets are:..........................................

Answer 1

Question 9). Solution :- Excess reserves = Reserves (Actual) - Required reserves.

= 35000 - 10 % of (50000 + 100000)

= 35000 - 10 % of 150000.

= 35000 - 15000

= $ 20,000.

Conclusion :- Excess reserve = $ 20,000.

Question 20). Answer :- Maximum new loan made by Friedman National Bank = $ 20,000 (equal to the amount of excess reserves)

Question 21). Answer :- Holding of earning assets = Loan / Total assets.

= 100000 / 250000

= 0.40 i.e., 40 %

Conclusion :- Holding of earning assets for Friedman National Bank = 40 %.