Chapter 9

Question 1

On a balance sheet of a bank

Answer 1

Assets= liabilities + net worth of owners

Question 2

Liabilities of banks

Answer 2

Sources of funds

1. checking deposit 11%
2. Saving and small time deposits 51%
3. Large time deposits
4. Borrowings(from other banks or federal reserve)

Question 3

small time deposit

Answer 3

Can touch it for a certain amount of time, less than $100,000, shorter the term lower the interest rate

Question 4

non controllable liabilities

Answer 4

checking, saving, and small time deposits

Question 5

Large time deposit

Answer 5

Timed deposit over $100,000

Question 6

discount loan

Answer 6

banks borrowing from the federal reserve

Question 7

Assets of banks

Answer 7

1. Reserves
2. Cash in process of collection
3. Banks have deposits at other banks
4. Securities
5. Loans (largest percentage housing loans)

Question 8

What are reserves made up of

Answer 8

1. Deposits at the federal reserve bank

2. Whatever currency sitting in the bank’s vault

Question 9

Required reserves

Answer 9

set as a percentage of deposits (reserve ratio is the % rr)

Question 10

Excess reserves

Answer 10

=Total Reserves - Regular Reserves

Question 11

Why keep excess funds

Answer 11

1. for an unexpected withdraw

2. Cheaper than borrowing

Question 12

Net worth of banks

Answer 12

ratio of net worth to assets 11%

Question 13

What is a cushion against net loses

Answer 13

net worth, when value of assets fall then networth falls, having a higher networth more cushion

Question 14

Required reserves

Answer 14

rr * deposits