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jonny [76]
3 years ago
8

(a)  Bank of Marienfield started its first day of operations with $150 million in capital. It received a total of $100 million i

n checkable deposits, and borrowed $50 million from Bank of Empira. The bank makes a $150 million commercial loan and invests $120 million in shares and $20 million in Treasury bonds. Assume required reserves are 10% of deposits and all remaining assets (if any) are kept as excess reserves, write the balance sheet of Bank of Marienfield.

Business
1 answer:
Juliette [100K]3 years ago
3 0

Here, we are going to prepare the balance sheet of Bank of Marienfield using the information given in the question..

  • Formula for Total liabilities is <em>Capital + Checkable deposit + Loan from bank</em>

<u>Given Information</u>

Capital = $150 Million

Checkable deposit = $100 Million

Loan from bank= $50 Million

Total liabilities = $150 Million + $100 Million + $50 Million

Total liabilities = $300 Million

<u>Additional given Information</u>

Commercial loan = $150 Million

Investment in shares = $120 Million

Investment in Treasury bonds = $20 Million

Required reserve = Checkable deposit * Required reserve rate

Required reserve = $100 Million * 10%

Required reserve = $10 Million

Excess reserve = Total liabilities - (Commercial loan + Investment in shares + Investment in Treasury bonds + Required reserve)

Excess reserve = $300 Million - ($150 Million + $120 Million + $20 Million + $10 Million)

Excess reserve = $300 Million - $300 Million

Excess reserve = $0 Million

                                  Balance sheet of Bank of Marienfield.

Assets                           Amount        Liability                        Amount

Required reserves       $10 million     Bank capital              $150 million

Excess Reserve            $0                  Checkable deposit  $100 million

Commercial loan          $150 million   Loan from bank        $50 million

Investment in shares    $120 million

Invest. Treasury bond  <u>$20 million </u>                                      <u>                       </u>

Total                              <u>$300 million</u>  Total                          <u>$300 million</u>  

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