Answer:
Explanation:
Purchase of securities by the federal bank
To purchase any securities the trade dealers at desk firstly call to government securities dealers of major commercial and investment banks. The govt. securities dealers provide the list of securities they want to sale.
This list also shows the maturity, denomination, and prices of securities. The FRNBY traders purchase securities at the lowest prices. They will notify the government bond agencies for the payment to selling dealers for the securities.
Panel A: Initial Balance Sheets: (IN MILLIONS)
FED
Assets- Securities: $56
Liabilities- Reserve Accounts: $56
National Bank
Assets- Loans: $644
Reserve Deposits at Fed: $56
Liabilities- Transaction deposits: $700
Panel B: After All Changes: (IN MILLIONS)
FED
Assets- Securities: $43.071
Liabilities- Reserve Accounts: $43.071
National Bank
Assets- Loans: $674.786
Reserve Deposits at Fed: $43.071
Liabilities- Transaction deposits: $717.857
New initial required reserves = 0.06 × $700 million = $42 million
Change in bank deposits = (1/(0.06 + (1 − 0.50))) × ($56 million − $42 million) = $25.000 million
Loans:
$725.000 million − $43.500 million = $681.500 million
Transaction deposits:
$700 million + ($14 × (1/(0.06 + 0.50)) = $725.000 million
Reserve deposits at Fed:
$725.000 million × 0.06 = $43.500 million
Panel A: Initial Balance Sheets: (IN MILLIONS)
FED
Assets- Securities: $56
Liabilities- Reserve Accounts: $56
National Bank
Assets- Loans: $644
Reserve Deposits at Fed: $56
Liabilities- Transaction deposits: $700
Panel B: After All Changes: (IN MILLIONS)
FED
Assets- Securities: $44.100
Liabilities- Reserve Accounts: $44.100
National Bank
Assets- Loans: $690.900
Reserve Deposits at Fed: $44.100
Liabilities- Transaction deposits: $735.000
New initial required reserves = 0.06 × $700 million = $42 million
Change in bank deposits = (1/(0.06 + (1 − 0.70))) × ($56 million − $42 million) × 0.90 = $35.000 million
Loans:
$735.000 million - $44.100 million = $690.900 million
Transaction deposits:
$700 million + ($14 × 0.90 × (1/(0.06 + 0.3))) = $735.000 million
Reserve deposits at Fed:
$735.000 million × 0.06 = $44.100 million
