HW5 - $20 million worth of shares of new stock 7 Assume a...

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1. The recent “capital ratio” (capital/total assets) of the aggregate U.S. commercial banking system is approximately 11 percent 2. Other things being equal, an expansion of bank loans results in an increase in bank assets and liabilities, and no change in capital 3. Other things being equal, when banks collectively are expanding loans required reserves rise, excess reserves fall, and the money supply increases 4. The largest source of commercial bank funds is savings deposits and small time deposits 5. Refer to the Commerce Bank balance sheet (slide 21 in lecture notes of Week 8). Now, if Commerce Bank grants a new loan of $2 million, it can expect that: its reserves will fall by $2 million 6. Considering this same Commerce Bank balance sheet, assume the required capital ratio (capital/total assets) is 10 percent. Commerce Bank can meet this requirement by Issuing
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Unformatted text preview: $20 million worth of shares of new stock 7. Assume a bank earns a rate of return of 1.0 percent on its total assets. If the bank’s capital ratio (capital/total assets) is 8 percent, the bank’s rate of return on capital or equity is: 12.5 percent 8. The net interest margin for banks is defined as the amount by which rates earned on bank earning assets exceeds rates paid on bank liabilities 9. The banking legislation that phased out the interest rate ceilings payable on bank deposits was the Depository Institutions Deregulation and Monetary Control Act of 1980 10. Drawbacks of the government “safety net” for financial institutions include: All of the above 11. The Money Market Mutual Fund Panic of 2008 was triggered by: the bankruptcy of Lehman Brothers investment bank...
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