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- Assume that banks lend out all their excess reserves. Currently, the total reserves that banks hold equal $32.8 billion. If the Federal Reserve decreases its reserve requirement from 8.2 percent to 6 percent, then there is potential for the whole banking system to raise the money supply by: O $8.8 billion O $10 billion. $246 billion. O $146,7 billion O $256 billion.If reserves in the banking system increase by $1 billion because the Fed lends $1 billion to financial institu- tions, and checkable deposits increase by $9 billion, why isn't the banking system in equilibrium? What will continue to happen in the banking system until equi- librium is reached? Show the T-account for the banking system in equilibrium.Suppose that the required reserve ratio in the economy is 7% and that commercial banks hold excess reserves at the Federal Reserve. If the Federal reserve buys bonds worth $30,000 from a commercial bank, then all else equal, the corresponding overall change in deposits (through bank-by-bank deposit expansion) is O less than $428,571.43. O equal to than $428,571.43. O greater than $428,571.43.
- Below is the balance sheet for Longhorn Bank, a private bank. As a commercial bank, Longhorn Bank faces a 10% reserve requirement. This scenario applies to the questions 34 - 38. ASSETS LIABILITIES Customer Reserves deposits $1,000,000 $150,000 Loans to households and biz $850,000If JFINEX Bank has 10B in Peso Savings deposits, 10B worth of dollar deposits, 20B in Peso Demand deposits, and 30B in Peso Time Deposits, what is the maximum amount the bank can lend after complying with the current local reserve requirement set by the BSP? 7.20B 61.60B 8.40B 52.80B Which of the following scenarios is considered an expansionary monetary policy? A hike in reserve requirement of banks Policy rate cut by the central bank Decrease in income tax collection Both B and C Mr. JFINEX is short of funds of $10MM. He can borrow from the following counterparties with their respective bid-offer quotations applicable for O/N or 1 week: Bank A: 0.10% - 0.16%; Bank B: 0.13% - 0.17%; Bank C: 0.12% - 0.15%. At what rate will he borrow assuming there is no borrowing limit? 0.15% 0.13% 0.10% 0.17% You want to buy 30MM pesos worth of RTB 10-21. At what rate can you buy the said GS to minimize cost given quotes from the following counterparties? Bank A: 3.60% –…Question 1. Suppose that the central bank buys $6 billion of bonds on the open market and the banks wish to hold reserves of 8 percent. A. What is the largest amount the money supply could ultimately increase? Explain. B. What would the money multiplier be in this case? Question 2. Suppose the government multiplier is 3.5, the money multiplier is 4.5, the income multiplier with respect to the money supply is 2.5 and the marginal tax rate is 20 percent. What is the ultimate change in the government's budget deficit G – T if government spending increased by $10 billion and at the same time the central bank increased the money supply by $5 billion? (Remark: not all the information stated above is needed to answer this question. To answer this question you need to figure out by how much output changes, then figure out the change in tax revenue). Question 3. Consider an economy in which the real level of income is $500B in 2010 dollars, the government multiplier is 3, the…
- A6 If a bank sells ₺10 million of bonds to the Fed to pay back ₺10 million on the loan it owes, what is the effect on the level of checkable deposits?Which of the following would increase a bank’s Net Interest Margin, assuming all else stays the same? Choose Two an increase in the interest rate on its loans companies paying off some of their loans and the bank using the funds to purchase Treasury bonds customers switching a portion of their time deposits to demand deposits the bank issues additional equity and keeps the funds in cash an increase in the federal funds rate assuming the bank borrows more in the federal funds market than it lendsSuppose the central bank of Economy B wants to increase the dollar money supply with an increase in bank reserves by around $36 billion over a short period of time. Further suppose that a commerical bank in Economy B wants to borrow such an amount from the central bank for nine days by means of a repo agreement with an annualized interest rate of 3.526% p.a. and its $36 billion government securities as collateral. Assume that there are 360 days per year in your calculation. Illustrate with calculations how this transaction would proceed.
- 8. Second Bank has the following balance sheet in millions of dollars, with the Basel risk weights given in parentheses. a. Does the bank have enough capital to meet the requirements as specified by Basel II? b. The bank wishes to keep its Tier 1 ratio at 5%. They will sell a portion of their consumer loans and invest them in U.S. government bonds. How much consumer loans should they sell? U.S. Govt T-Bonds (o%) $10om Deposits $ 950m Govt. Agency FNMA Bonds (20%) $200m Subordinated Debt ((Tier II) $ 1om University Dorm bonds (50%) $30om Preferred Stock (Tier II) $ 25m Consumer Loans AAA-rated (20%) $20om Commercial Loans BBB-rated (100%) $200m Equity (Tier I) $ 15m $100om $1000m Total5Now think of this process to repeat again and again in the banking system.A. What is the banking system’s money multiplier? B. Given the above money multiplier, by how much will the total money supply change due to the purchase of bonds by the BSP? 6. Assume this time that the government, through BSP, wants to use this P50,000 bond purchase to target an increase in the total money supply worth P350,000. Determine the required reserve ratio that will be needed in order to reach that target.Pretend that the country is in a normal economic climate. Suppose that the Federal Reserve, announces that the Fed plans to initiate the purchase of $2 million worth of Treasury and other bonds that banks and the public are currently holding. The reserve requirement for banks is 10% of deposits. In as much detail as possible, trace through all the steps between this announcement and the ultimate effects on the (i) money supply, (ii) interest rates, and (iii) inflation. Please utilize text explanations, graphs, T-accounts, and equations.