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

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Tundexi Tundexi · Answer 1 · 2021-11-12T16:49:41+01:00

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 Capital + Checkable deposit + Loan from bank

Given Information

Capital = $150 Million

Checkable deposit = $100 Million

Loan from bank= $50 Million

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

Total liabilities = $300 Million

Additional given Information

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 $20 million

Total $300 million Total $300 million