1. Explain the primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks.
2. Explain the role of a collateral in the credit market. Is it helpful?
3. You are the manager of a bank. It has the following balance sheet:
Assets Liabilities
Reserves $ 100 million Checkable deposits $400 million
Securities 100 million
Loans 300 million Bank capital 1000 million
If the required reserve ratio is 15%, what actions should the bank manager take if there is an unexpected deposit outflow of $80 million?