Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits.
a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received.
b. Assume Bank A makes a loan in the amount that can be “”safely lent.””
Show what the bank’s balance sheet of assets and liabilities would look like immediately after the loan.
c. Now assume that a check in the amount of the “”derivative deposit”” created in (b) was written and sent to another bank. Show what Bank A’s (the lending bank’s) balance sheet of assets and liabilities would look like after the check is written.
