Financial Structure and Commercial Banking Problem Set, Assignments of Banking and Finance

Download Financial Structure and Commercial Banking Problem Set and more Assignments Banking and Finance in PDF only on Docsity! ECON 325 Money and Banking Problem Set 4 (Financial Structure and Commercial Banking) I. Definitions contractual saving institutions government financial institutions depository institutions investment institutions securities market institutions defined benefit plan defined contribution plan bank net worth bank assets bank liabilities balance sheet T-account II. Short-Answer Questions/Essays/Calculations 1. What are the five main groups of financial institutions? Which institutions belong in each group? 2. What are the different types of finance companies and who uses them? 3. Why would banks usually welcome a reduction in reserve requirements? Would a reduction in reserve requirements matter to a bank that voluntarily held reserves for clearing purposes that were higher than required reserves? 4. Suppose that First Bank has $34 million in checkable deposits, Second Bank has $47 million in checkable deposits, and the reserve requirement for checkable deposits is 10 percent. If First Bank has $4 million in reserves and Second Bank has $5 million in reserves, what are the excess reserves of each bank? Now suppose that a customer of First Bank writes a check for $1 million to a real estate broker who deposits it at Second Bank. What are the excess reserves of each bank now? 5. Prepare the balance sheet of a bank that has $20 million in reserves, $40 million in securities, $140 million in loans, $150 million in deposits, and $50 million in equity capital. If the reserve requirement is 10 percent, what are the bank's excess reserves? Suppose that checks drawn on the bank's account total $10 million. Show the revised balance sheet. What are the bank's excess reserves? How much does the bank need to borrow? Suppose that the bank borrows one-half of its reserves deficiency in the federal funds market and half from the Fed. Now, what does its balance sheet look like? 6. In the early 1970s, savings institutions had mostly long-term mortgage loans as assets and many checkable deposits and time deposits with short maturities as liabilities. What do you think happened to the value of these institutions when interest rates rose dramatically in the mid- and late-1970s?