Answer:
A. Increase; Deposits
B. Initial Value 15; New Value 16
C. The aim of Capital requirement is to protect the interests of all depositors.
Explanation:
A. This would increase the loans account and INCREASE the DEPOSITS account since the double entry principle state that every Debit entry must have a corresponding Credit entry and every Credit entry must have a corresponding Debit entry, therefore based on the information given assuming the new customer adds the amount of $100 to his account at the Mutual Bank, which we were told that the owners of the bank then use to make $100 worth of new loans, in this case both the loans and deposits will be have to increase by the amount of $100.
B. Calculation to determine the leverage ratio from its initial value to a new value
Calculation for Leverage Ratio using this formula
Leverage Ratio = Reserves+Loans+Securities/Capital
Let plug in the formula
Leverage Ratio = $150+$600+$750/$100
Leverage Ratio = $1,500/$100
Leverage Ratio =15
Calculation for New Leverage Ratio
Using this formula
New Leverage Ratio=Reserves+(Loans+increase in loans)+Securities/Capital
Let plug in the formula
New Leverage Ratio=$150+($600+$100)+$750/$100
New Leverage Ratio=$150+$700+$750/$100
New Leverage Ratio=$1,600/$100
New Leverage Ratio=16
Therefore This would also bring the leverage ratio from its INITIAL VALUE of 15 to a NEW VALUE of 16
C.The aim of CAPITAL REQUIREMENT is to protect the interests of all depositors.
