The Monetary System 9

# The Monetary System 9 - 9 Banking requirements I Use the...

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Unformatted text preview: 9. Banking requirements I“) Use the information presented in Southwestern Mutual Bank's balance sheet to answer the following questions. Ba nk's Balance Sheet Assets Liabilities and Owners' Equity Reserves \$100 Deposits \$300 Loans \$400 Debt \$150 Securities \$500 Capital (owne rs' equity] \$50 Suppose the owners ofthe bank contribute an additional \$150 from their own funds and use it to buy securities in the name ofthe bank. This would increase the securities account and increase 1’ the capital 1’ account. ﬁPoints:_1f1 ﬁPoints:—1}1 Explanation: Close Explanation A Within anv balance sheet, the total value of all accounts on the left—hand side (the assets) must equal the total value of all accounts on the right— hand side [the liabilities). An increase in an account on one side must, therefore, lead to a corresponding increase on the opposite side or a decrease in another account on the same side. Thus, when the owners of the bank contribute an additional \$150 from their own funds and use it to buy securities in the name ofthe bank, both securities (an asset) and capital (owners' equity) increase by \$150. This would also bring the leverage ratio from its initial value of 20.00 v’ to a new value of 5.?5 V’ . sPoints:—1!1 which of the Following do bankers take into amount when determining how to allocate their assets? dledc a}! that appiy. 1’ I The riskinas ofeach asset 1’ I The size ofthe monetary base at I The total valueofliabilitia ...
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