--%>

Consolidated balance sheets for the chartered banking syste

In the below table you will determine consolidated balance sheets for the chartered banking system & the Bank of Canada. Employ columns 1 through 3 to show how the balance sheets would read after each of transactions a to c is finished. Analyze separately each transaction, beginning in each of case from the figures provided. All of the accounts are in billions of dollars.

828_consolidate balance sheet.png

a. A decline into the discount rate prompts chartered banks to borrow an added $1 billion from the Bank of Canada. Illustrate the new balance-sheet figures in column 1 of each table.
b. Bank of Canada sells $3 billion into the securities to members of the public, who pay for the bonds with cheques. Illustrates the new balance-sheet figures in column 2 of each table.
c. The Bank of Canada purchase $2 billion of securities through chartered banks. Illustrated the new balance sheet figures in column 3 of each of the table.
d. Now review each of the above three transactions, asking yourself these three questions: (1) What modification, if any, took place in the money supply as a direct and instant result of each transaction? (2) What increase or decrease in chartered banks' reserves occurs in each of transaction? (3) Supposing a desired reserve ratio of 20 percent, what change in the money making potential of the commercial banking system occurred consequently of each transaction?

 

E

Expert

Verified

(a) Column (1) data, top to bottom: Bank Assets will be $34, 60, 60; Liabilities will be $150, 4; Bank of Canada Assets will be $60, 4; Liabilities will be$34, 3, 27.

(b) Column (2) data: Bank Assets =$30, 60, 60;  Liabilities= $147, 3; Bank of Canada Assets= $57, 3, 30, 3, 27.

(c) Column (3) data (top to bottom)=  $35; $58; $60; $150; $3; (Bank of Canada) $62; $3; $35; $3; $27.

(d) (d1) Money supply (demand deposits) directly changes simply in (b), where it reduce by $3 billion; (d2) See balance sheets; (d3) Money-creating potential of the banking system enhanced through $5 billion in (a); decreases through $12 billion in (b) (not by $15 billion—the writing of $3 billion of cheques through the public to purchase bonds drop demand deposits by $3 billion, therefore freeing $0.6 billion of reserves.  Three billion dollars minus $0.6 billion equal $2.4 billion of decreased reserves, and this multiplied through the monetary multiplier of 5 equals $12 billion); and enhanced by $10 billion in (c).

   Related Questions in Finance Basics

  • Q : Define Overhead Unit Overhead Unit :

    Overhead Unit: The organizational unit which benefits the production of an article or a service however that can’t be directly related with an article or service to share out all of its expenditures to elements and/or work authorizations. The co

  • Q : Define Bill Bill : It is a draft of

    Bill: It is a draft of proposed law represented to the Legislature for performance. (A bill has bigger legal formality and standing than a resolution.) OR An invoice, or document statement, of an amount owing for s

  • Q : How cash and capital budget relate to

    Describe how the cash budget and the capital budget associate to proforma financial statements.The cash budget illustrates the projected flow of cash in and out of the firm for particular time periods. The capital budget illustrates planned expe

  • Q : What is Non-governmental Cost Funds

    Nongovernmental Cost Funds: For lawful basis purposes, employed to budget and account for revenues other than common and special taxes, licenses, and fees or some other state revenues.

  • Q : Impotence of distinction Normal 0 false

    Normal 0 false false

  • Q : Working capital what are the advantages

    what are the advantages and disadvantages of working capital source of finance

  • Q : Explain Fund Condition Statement Fund

    Fund Condition Statement: A budget display, comprised in the Governor’s Budget, shortening the operations of a fund for the past, present, and budget years. The display comprises the starting balance, previous year adjustments, loans, revenue, t

  • Q : How do mergers influence small

    How do mergers influence small businesses?According to a recent study through Federal Reserve & Wharton Financial Institutions Center economists, not a great deal. Their analysis revealed that acquisitions don't seem to be related with a sig

  • Q : Examples of high operating leverage

    Give two instances of types of companies likely to contain high operating leverage. Give examples. Long distance telephone companies & electricity generating companies are likely to contain operating leverage. These two kinds of companies

  • Q : Define Programs Programs : The

    Programs: The activities of an association grouped on the basis of common objectives. The programs are included of elements that can be further classified into tasks and components.