1. For each of the following transactions, explain which categories on a bank’s balance sheet would instantly change and how they would change (i.e. up/down, etc.)
a) A bank customer deposits $20 into their checking account.
b) The Federal Reserve conducts a $100 open market sale of short-term securities with a bank.
c) A bank customer withdraws $25 from their money market deposit account.
d) The bank writes down their short-term loan portfolio by $30.
e) A bank raises $100 from issuing new shares of stock.
2. Why do market participants such as bond dealers quote the clean price of a bond, not the full price? Answer the question using 100 – 300 words.