8/18/2019 Eco 102 Assg3 by August6
1/2
ECO 102 (FDS)
Assignment ‐ 3
by 6th
August in class (Hard copy)
Question1:
The table below shows the balance sheet for Prime Bank, which currently has no excess reserves,
(Bank’s reserve ratio = target reserve ratio). (Assume fixed target reserve ratio and no cash drain).
Balance Sheet: Prime Bank
Assets Liabilities
Reserves
200
Deposits
4200
Loans
4200
Shareholder's
Equity
400
Government Securities 200
4600 4600
a.
Compute
the
required
reserve
ratio
in
this
banking
system.
b.
What does the shareholders' equity represent in the balance sheet above?
c.
Suppose the Bangladesh Bank purchased all government securities Prime Bank had held.
Complete the new balance sheet below showing the immediate effect of the open market
purchase
on
the
balance
sheet
below .
Balance
Sheet:
Prime
Bank
Assets Liabilities
Reserves ? Deposits ?
Loans ? Shareholder's Equity ?
Government Securities ?
d.
What
will
be
the
Regal
Bank’s
new
reserve
ratio?
e.
How much of new loans can be made by Prime Bank after Bangladesh Bank purchased all
government
securities
from
Prime
Bank?
(Hint:
no
calculation
is
required)
8/18/2019 Eco 102 Assg3 by August6
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Question2:
Consider
that
one
of
your
class
mates,Nusrat,
migrates
to
Chicago,
USA,
and
takes
$5000
with
her.
After
settling down, she opened a bank account with Standard Chartered Bank (SCB) USA and deposited there
the $5000 she took with herself. Assume all commercial banks in USA have a target reserve ratio of 10 %
and
there
is
no
cash
drain.
a)
Is
$5000
she
deposits
a
new
deposit
to
American
banking
system?
Why?
b)
Starting with SCB, let’s assume the money circulates in four banks – TD bank, Scotia Bank, HSBC
bank. Complete the following table:
Bank Deposit
Addition to
reserve Loan
SCB 5000
TD
Scotia
HSBC
c)
Compute maximum changes of (i) deposits, (ii) reserves, and (iii) money created out of thin air
(loan) in the US banking system.
Instructions:
1.
You
are
required
to
submit
your
assignments
by the 6
th of August in class (you may submit earlier
than the deadline if you wish but no late submissions will be accepted).
2.
Only hard copies of the assignment will be accepted. (It can be handwritten or typed)
3.
Make sure you write the formula and show proper calculations to avail partial marking in case you
end up with wrong answers.
4.
Any
form
of
academic
dishonesty
will
immediately
qualify
for
cancellation
of
the
assignment.
5.
Do not skip any question. Try your best to answer all.
6.
You can email me or meet me in my office if you have any questions.
HAVE FUN!
