Sign In Sign Up Ask an AI advisor
kndaniels05
kndaniels05
06.11.2019 • 
Business

Suppose you were the manager of a bank with the following balance sheet (ignoring bank capital): assets (in millions) liabilities (in millions) reserves $30 checkable deposits $200 securities $150 time deposits $600 loans $820 borrowings $100 you are required to hold 10 percent of checkable deposits as reserves. if you were faced with unexpected withdrawals of $60 million from time deposits, would you rather a: draw down $10 million excess reserves and borrow $50 million from the fed? b. draw down $10 million excess reserves and sell securities of $20 million? a) option a would be preferred to option b because it shrinks the size of the balance sheet by less. banks would prefer not to reduce the size of their balance sheets as that lowers their profit.b) option b would be preferred to option a because it shrinks the size of the balance sheet by less. banks would prefer not to reduce the size of their balance sheets as that lowers their profit.c) option b would be preferred to option a because borrowing from the fed is never a good idea under any circumstance.d) both options are equally desirable as they are equally costly to the bank.

Solved
Show answers

Ask an AI advisor a question

I want advice