Blank 1: A. liquidity B. liability 3. customer service Blank 2: A. profitability
ID: 1208353 • Letter: B
Question
Blank 1:
A. liquidity
B. liability
3. customer service
Blank 2:
A. profitability
B. security
C. accountability
Suppose a group of investors pooled $750,000 and founded Best National Bank in Trenton, NJ. Best National Bank used $75,000 of this to purchase shares in the Philadelphia Federal Reserve Bank. With the remaining $675,000, the bank manager purchased a building, furniture, and equipment for the bank Use the preceding information to complete the following table showing Best National Bank's balance sheet. Best National Bank's Balance Sheet Assets Liabilities and Net Worth Total Total Now Janet Zhou opens a new checking account at Best National Bank and makes an initial deposit of $250,000 in currency. Fill in the following table to show Best National Bank's balance sheet just after Janet's deposit. Best National Bank's Balance Sheet Assets Liabilities and Net Worth Total TotalExplanation / Answer
750000 is the investors money which the bank owes, so its a liability. Shares is an asset because bank can earn money with those shares so its an asset. Furniture, building and equipment are also assets because they are used in the day to day operations to run the business. Net worth is zero. Because all the investors money is spent in creating the assets and there are no profits as of now.
Deposits are liabilities to banks, because they have to repay them to the customers. So liabilities would increase by 250000. Total would be 750000 + 250000 = 1,000,000. Assets would be 75,000 + 675,000.
Lending money is always a tradeoff between liquidity and profitability. If he keeps the whole deposit money with him, then the manager can maintain 100% liquidity. On the other hand, if he lends the money completley, then he can earn more profit.
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