Question one on page 527 asks to create a balance sheet for a typical bank, showing its
main liabilities (sources of funds) and assets (uses of funds).
According to Jeff Madura, author
Financial Markets and Institutions
, a bank’s assets consist of cash, loans, securities, federal
funds sold (loaned out), repurchase agreements, Eurodollar loans, and fixed assets.
liabilities and stockholders’ equity consists of demand deposits, savings deposits, time deposits,
money market deposit accounts, federal funds purchased (borrowed), other short-term funds
borrowed, and long-term debt stockholders’ equity.
Question two asks what the four major sources of funds for banks are.
does a bank have if it needs temporary funds? What is the most common reason that banks issue
The four major sources of funds are transaction deposits, savings deposits, time deposits,
and money market deposit accounts.
An alternative that banks have if they need temporary
short-term funds is federal funds rate, borrowing from the Federal Reserve banks, repurchase
agreement (repo), and Eurodollar borrowings.
The most common reason that banks issue bonds
is, “like other corporations, banks own some fixed assets such as land, buildings, and equipment.