Using the economics of banking theory covered in class, we show how the balance sheet for the Bank of Milan, Tennessee would appear assuming an asset...
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Using the economics of banking theory covered in class, we show how the balance sheet for the Bank of Milan,

Tennessee would appear assuming an asset management bank, where you have a problem that demand for assets are greater than supply of deposits plus capital.

Bank of Milan, Tennessee

                                      Statement of Financial Conditions (pro forma)

                                                                October 1, 2019

Assuming an Asset Management Bank


              U.S. Treasury Securities    $0                      Demand Deposits $8,000.00_                     


           Agriculture Loans             $10.000.00            Time Deposits     $10,000.00_                    


           Consumer Loans               $15,000.00            Capital                      2,000.00     


           Total Assets                      $25,000.00            Total Liab & NW $20,000.00_

 

Therefore, you need to start over assuming a liability management bank. Determine the new equilibrium balance sheet and proforma income statement.              

Demand function for agriculture loans (LA)

                   rA = 13.00% - .0005LA

                   

                   

                   LA=$________          rA= ________%

Demand for function for consumer loans (LC)

                   rC = 9.00% - .0002LC                                                                                                                               

                   

                   

                   LC=$________            rC= _________%

Supply function for demand deposits (DD)

                   rD = -4.00% + .0004375DD

                   

                   

                   DD= $_________           rD________%

Supply function for time deposits (DT)

                   rT = 0.00 + .00015DT

                   

                   

                   DT= $_________           rT________%

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