10) Classify each of these transactions as an asset, liability, or neither for e
ID: 1122332 • Letter: 1
Question
10) Classify each of these transactions as an asset, liability, or neither for each of the "players" in the money supply process-the Federal Reserve, banks, and depositors. a. You get a $10,000 loan from the bank to buy an automobile. b. You deposit $400 into your checking account at the local bank. c. The Fed provides an emergency loan to a bank for $1,000,000 d. A bank borrows $500,000 in overnights loans from another bank. e. You use your debit card to purchase a meal at a restaurant for $100.Explanation / Answer
Answer - We simple need to analyze the statement and decide whether it is an asset, liability for each of the player in the money supply process. The players are, The Federal Reserve Bank and commercial banks and depositors.
(a) 'You get a $10,000 loan from the bank to buy an automobile. According to this statement the depositor has liability to repay this loan. This is a liability for depositor. The loans are assets of the banks.
(b) You deposit $400 into your checking account at the local bank. Deposits in checking account are liability of that Banks. This is a liability of banks. This is an asset for depositor.
(c) The Fed provides and emergency loan to a bank for $1,000,000. The commercial bank will have to repay this loan to the fed. Thus, this is an asset of the Fed and it is a liability to bank.
(d) A bank borrows $500,000 in overnight loans from another bank. This is a liability for the borrower bank and it is an asset for lender bank.
(e) You use your debit card to purchase a meal at a restaurant for $100. The depositor use his/her debit card in order to pay his/her expenses. Depositor withdraw money from his/her account what he/she deposited in the bank in the past. Depositor paid $100 as its liability to restaurant. These $100 are assets of restaurant.
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