suppose Universal Bank holds $100 million in assets, which are composed of the f

Question

suppose Universal Bank holds $100 million in assets, which are composed of the following

Required Reserves = $10 million

Excess Reserves= $5 million

mortgage loans = $20 million c

orporate bonds = $15 million

Stocks = $25 million

Comodities = $25 million

a) do you think it is a good idea for Universal Bank to hold stocks, corporate bonds, and commodities as assets? why?

b) - if the housing market suddenly crashed, would Universal Bank be better off with a mark to market accounting system or the historical cost system?

c) if the price of commodities suddenly increased sharply , would Universal Bank be better off with a mark to market accounting system or the historical cost system?

d)what do your answer to B and C tell you about the tradeoffs between the two accounting systems?

Explanation / Answer

suppose Universal Bank holds $100 million in assets, which are composed of the f

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