Problem
Project Case
Suppose that First national bank has the following balance sheet Position & that the required reservation on deposits is 25%
Reserve 60m
Loan 75m
Securities 20m
Deposits 150 m
Bank capital 5 m
1. It the bank suffers a deposit outflow of 20M. What its balance sheet look like? Must the bank make any adjustment?
2. Suppose the bank now is hit by another 10M. Of another outflow. What a balance sheet look like? Must the bank make any adjustment, why?
3. If the bank is now hit by another 5M. Of withdrawers of deposits what a balance sheet look like? Must the bank make any adjustment, why?
4. What the final picture of this commercial bank balance sheet and how much do this bank have Excess reserve now?
5. If the Central bank decided to increase the Monetary base by increase give this bank loan by 100M, Illustrate the Multiplier deposit expansion process using T- Account & assuming that Bank use all its excess reserve to grant loan, carry on example though banks A, B, C starting by 100 checkable deposit & Required Reserve Ratio equal 5%.