NewBank started its first day of operations with $208 million in capital. A tota

Question

NewBank started its first day of operations with $208 million in capital. A total of $211 million in checkable deposits is received. The bank makes a $24 million commercial loan and another $27 million in mortgage loans. Required reserves are 9.1%. NewBank decides to invest $159 million in 30-day T-bills. The T-bills are currently trading at $4,989 (including commissions) for a $5,060 face value instrument. How many T-bills do they purchase? (Note: Information is based on NewBank's first month of operations.) NewBank will purchaseT-bills. (Round your response to the nearest whole number.) Complete the balance sheet below to show NewBank's purchase. (Round your responses to the nearest whole number.) Assets Liabilities Required reserves Excess reserves T-bills Loans Checkable deposit:s mllion Bank capital $million $million $million

Explanation / Answer

Amount invested in 30-day T-bills = $159 million

Current price of T-bill = $4,989

Number of T-bills purchased = Amount invested/Price = $159 million/$4,989 = 31,870 T-bills

So,

New Bank will purchase 31,870 T-bills.

Total checkable deposits = $211 million

Required reserves ratio = 9.1% or 0.091

Required reserves = $211 million * 0.091 = $19 million

Following is the complete balance sheet -

Assets Liabilities Required reserves $19 million Checkable deposits $211 million Excess reserves $190 million Bank Capital $208 million T-bills $159 million Loans $51 million

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