Check my work The balance sheet for ACME Bank is shown below ACME Bank Balance S

Question

Check my work The balance sheet for ACME Bank is shown below ACME Bank Balance Sheet 1 Lisbilities and net worth Reserves Loans Property 5 140 000 34.500 Stock shares S 240 000 deposits 5 218,000 Suppose the bank decides to imvest 50 percent of its excess reserves in short term secunties in order to earn interest. The bark issues dealer deposits the check into an account at a ACME Banks balance sheet look lke after tre check has been processed? Fill in the values in the table a cashiers check to a securities dealer to purchase the securities. The secunities below. Assume a required reserve ratio of 5 percent Instructions: Enter your answers as whole numbers ACME Bank Balanos Sheet 2 Liabilities and net worth Stock sharos Loans Sacuthies Property Prey 90110, Next >

Explanation / Answer

The required reserve ratio is 5%. So the ACME bank's required ratio is 140,000 * 5% = 140,000 * 5/100 = $7,000

Required Reserve is the reserve ratio percentage of checkable deposit.

Required Reserve = $7,000

Reserves = $127,500

Excess reserves = Reserves - Required Reserve

Excess Reserves = $127,500 - $7,000

Excess Reserve = $120,500

Now the bank invest 50% percent of excess reserves in short term securities.

It means it invest 50% of 120,500 = 120,500 * 50/100 = $60,250

Now after the check has been processed the ACME bank is left with

- Reserves = $127,500 - $60,250 = $67,250

- Now the bank's asset increase by securities of $60,250.

everything else remain same in the balance sheet so new balance sheet

ACME Bank ( balance sheet 2 ) Assets amount ($) Liabilities and net worth amount ($) Reserves 67,250 Checkable Deposits 140,000 Loans 34,500 Stocks Shares $240,000 Securities 60,250 Property 218,000

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