Use the information presented in Northeastern Mutual Bank’s balance sheet to answer the following questions.
Bank’s Balance Sheet:
|ASSETS||Liabilities and Owners Equity|
|Reserves $150||Deposits $ 850|
|Loans $750||Debt $100|
|Securities $600||Capital (Owners Equity) $550|
a) Suppose the owners of the bank contribute an additional $175 from their own funds and use it to buy securities in the name of the bank. This would increase the securities account and (increase, decrease) the (capital, debt, deposits, loans, reserves) account.
b) This would also bring the leverage ratio from its initial value of (2.31, 2.73, 4.83, 5.71) to a new value of (2.31, 2.73, 4.83, 5.71).
c) Which of the following do bankers take into account when determining how to allocate their assets? Check all that apply.
i. The reserve requirement.
ii. The total value of liabilities.
iii. The size of the monetary base.