Share
Explore BrainMass

Banking

Almost all economies have a modern banking system, such as the one the one that exists in Canada. Banking refers to the monetary and financial activies that exist between the financial institution, the population, and the government. Banks provide liquidity for businesses and families to invest in for the future. Banks will provide a secure place to save cash (deposits) and these deposits are then insured. Banks keep ten percent of a deposit on hand and lend the other ninety percent out. Banks make more money from charging higher interest rates on loans than what they pay for deposits.

A central bank is a government owned and operated institution that is the sole money-issuing authority and controls the banking system¹. In Canada, the central bank is the Bank of Canada, referred to as just the "Bank"¹. Financial intermediaries are institutions that are privately owned and serve the general public. These types of institutions are called intermediaries because they accept deposits from the savers and give loans to the investors. Commercial banks refer to the financial intermediaries who accept deposits and create deposit money.

A central bank serves four basic functions: it is a bankers for private banks, a bank for the government, the regulator of the nation’s money supply, and a regulator and supporter of financial markets. The central bank will take deposits from commercial banks, which will then be transferred to the account of another bank. This process between central banks and commercial banks provide commercial banks with what can be seen as a chequing account and a means of settling debts to other banks¹.

Banks are also private firms that work towards a profit. Any liabilities the bank has are its deposits that are owned to the depositors. The main assets of a bank are its securities, including government bonds, and the interest-earning loans made to individuals and businesses. A bank loan is a liability to the borrower but an asset to the bank¹An economy cannot function without banking because banks control the money supply and regulate the economy.

 

Reference:

1. Ragan, Chrisopher. Macroeconomics/Christopher T.S. Ragan, Richard G. Lipsey. – 13th Canadian ed. 

Effect of a change in Required Reserves on a bank's balance sheet

Monetary Policy and Reserves You are analyzing the financials for the Marysville National Bank (MNB), and know that the Fed has imposed a 10% reserve requirement. Using this abbreviated balance sheet, answer the questions listed below. Maryville National Bank (MNB) Balance Sheet Assets Liabilities Loans $9

Mortgage Defaults and the Effect on the Money Supply

Think of the role banks have in generating money in the economy. How do the mortgage defaults from the last economic recession in the U.S. affect the money supply? What will happen to interest rates as a result?

Prepare an analysis on the Reserve requirements

Prepare an analysis by answering the questions below. Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place: Balance Sheet for Ecoville International Bank ASSETS // LIABILITIES Cash $33,000 // Demand Deposits $99,000 Loans 66,000 Required: Now assume that the F

Macroeconomic Indices and Principles

Please discuss the economic principles and indices found in recent macroeconomic articles: Mankiw, Gregory N. 2012 , Principles of Macroeconomics 6th edition. Mason- OH:South-Western, Cangace Publishing . Mankiw, Gregory N. 2003, Macroeconomics, 5th edition. Worth Publishers, New York, NY Williams John C. 2013, FRBSF Econ

The Fall of the American Banking System

listen to radio recording in the link provided below & pick 1 of them and explain it to me in your own words 1-2 pages, I am not looking for you to repeat back to me what you heard or read in the recording what I am looking for is the understanding of these very complex issues and for you to explain it to me as if you are my tea

Discussion on the Approval of Resolving Credit

Write 10-15 sentences on this scenario: If you were a lending officer at Bank of America and were asked to approve a $100,000,000 unsecured revolving credit facility for Ford that would (i) bear interest at 7% per year and (ii) require a 30-day clean-up period each year, based solely on the information contained in the attach

Calculating ratios: capitalization

As far as non banking corporations are concerned following ratios determine the corporation to be adequately capitalized or undercapitalized: (i) Working capital to total asset ratio (ii) Retained earnings to total asset ratio (iii) EBIT to total sales ratio (iv) Market value of equity to book value of liabilities (v) Sales

Revenue Equation: Pricing ATM machines

6-3 Pricing ATM machines A bank in a mediumsized Midwestern city, Firm X, currently charges$1 per transaction at it's ATM's. To determine whether to raise price, the bank managers experimented with a number of higher prices (in25-cent increments) at selected ATMs. The marginal cost of an ATM transaction is $0.50 ATM fee

Deposit Creation

Deposit Reserve Requirement (10%) Loan Bank 1 2,000 A = ? B = ? Bank 2 1,800 C = ? 1,620 Bank 3 D = ? E = ? 1,458 Identify the values that complete the

Banks and the Financial Crisis

The GSEs would not purchase subprime and Alt-A nonagency securities during the 2000s. This meant that banks had to buy these risky securities which was a leading factor leading to the collapse of Wells Fargo. True or false and why?

Money Supply Calculations

Suppose the entire economy contains $5000 worth of one-dollar bills. (a) If people fail to deposit any of the dollars, but instead hold all $5000 as currency, how large is the money supply? (b) If people deposit the entire $5000 worth of bills in banks that are required to observe a 100% reserve requirement, how large is the

Monetary Policy: Open-Market Sale

Consider a world in which there is no currency and depository institutions issue only checkable deposits and desire to hold no excess reserves. The required reserve ratio is 20 percent. The central bank sells $1 billion in government securities. What happens to the money supply?

Managerial Decisions - Online Bill Payment

The Wall Street Journal reported that businesses are aggressively pushing consumers to pay bills electronically. Numerous banks dropped their monthly fees for online bill paying, and many merchants are offering incentives for customers to sign up for online bill payment. Aside from the direct cost savings to businesses, such a

Calculating Annual Cost

Purchasing a Battery: An engineering student needs to replace the battery in her car so that she can drive home for a vacation after Spring Semester. She has located the following possibilities: Battery Warranty Battery Cost 2 years

Mortgage Default Crisis

I need help with some factors that led to the mortgage default crisis. How did mortgage defaults affect banks involved in mortgage lending and mortgage investing?

Bank's T-Account: Required Reserves and New Loans

Suppose the Required Reserve Ratio (RRR) is 10 percent and the balance sheet of the People's National Bank looks like the accompanying example: ASSETS LIABILITIES Vault Cash- $20,000 Checking Deposits-$200,000 Deposits at Fed-$30,000

Calculating the effective interest rate per year

Jane invested $9,000 in a high yield bank account. At the end of 15 years she closed the account and received $299,000. 1. Compute the effective interest rate per year she received on the account if the interest was compounded yearly. 2. If the account was compounded quarterly, what was the nominal interest rate per year

Operating a business

Can I please have someone answer the 2 questions below? Thanks 1. Suppose you decide to open a copy store. You rent store space (signing a one-year lease to do so), and you take out a loan at a local bank and use the money to purchase 10 copiers. Six months later, a large chain opens a copy store two blocks away from yours.

Economic Activities Affecting Stakeholders

Economic activities: *Purchasing of groceries *Massive layoff of employees *Decrease in taxes Please describe how each of these activities affects government, households, and businesses. Describe the flow of resources from one entity to another for each activity. How do these activities relate to each other?

Money Multiplier: Imagine one of the worst case scenarios realizes

Imagine one of the worst case scenarios realizes in October 2012, in which Greece does not belong to the eurozone any more, so Greece goes back to the use of its own currency, Greek drachma. Suppose that the monetary base, which is equivalent to the sum of all the initial deposits in the banking system, has risen from 1 trillion

Debate structures of current income tax system in the U.S.

There is always debate regarding the structure of the current income tax system in the U.S. Many opponents of the current system argue that under its current structure, many wealthy households are able to avoid taxes and for most households, the tax system is simply too complicated and confusing. One solution that has been propo

Federal Reserve efficiency

The Federal Reserve Bank controls the money supply and interest rates in the United States. How good, or bad, a job has it done over the last two years? Why? What could it or should it have done differently? Why?

Managerial Economics, Profits and Various Costs Calculations

1. ABC Corp. owns a piece of land and building a few miles from its headquarters. The land originally cost ABC $500,000 to purchase. ABC is considering using the facility for a new training program. It could also rent a building about the same distance from its headquarters for $20,000 a year. A developer has offered ABC $2.5 m

Find the present value of a future payment

The concept of present value gives the equivalent in dollars available immediately to a payment that is made at some point in the future. What amount of money today is equivalent to $1,100 one year from now, if banks are paying an interest rate i = 10% per year? In other words, what is the present value of $1,100 received on

When considering the process of preparing a bank reconciliation it's noted that under normal circumstances only one section of the analysis may generate additional entries on the books of the account holder. Which of the following items would cause an entry on the books on the account holder after reviewing and preparing their bank reconciliation? Answer A. $1,200 of outstanding checks that have not cleared the bank yet. B. $650 of deposits in transit that have not yet been recorded by the bank, but were dropped off in the deposit box last night. C. A $66 check written to Builder's Depot that hasn't cleared the bank yet. D. $8.65 worth of interest deposited into the account of the account holder by the bank on a maturing Certificate of Deposit. This is the first time that the account holder is aware of the interest deposit for the semiannual period. Please utilize the previous question regarding the preparation of a bank statement and any necessary correct answers to address the following question. What would be the journal entry that would need to be recorded on the books of the account holder once the bank reconciliation is completed? Item Account Name Post Ref DEBIT CREDIT 1 Cash $8.65 Interest Revenue $8.65 2 Deposits in Transit $650 Cash $650 3 Cash $1,200 Accounts Receivable $1,200 4 Accounts Payable-Home Depot $66 Cash $66 Answer A. Item # 4 is the correct journal entry B. Item # 1 is the correct journal entry C. Item # 2 is the correct journal entry D. Item # 3 is the correct journal entry

Two questions.. When considering the process of preparing a bank reconciliation it's noted that under normal circumstances only one section of the analysis may generate additional entries on the books of the account holder. Which of the following items would cause an entry on the books on the account holder after reviewing and

Federal bank

a) In what sense does the Fed "create money"? b) Suppose that the minimum required reserve ratio for banks was 1/11. Also suppose that banks held no excess reserves and that currency in circulation was unchanged. What action in the Treasury bill market would the Fed have to take to increase bank checking account deposits by $

Macroeconomics Question and Problems

7.Donaldson + son has an ROA of 10%, a 2% profit margin, and a return on equity equal to 15%. What is the company's total assets turnover? what is the firms equity multiplier? 8. The nelson company has $1,312,500 in current assets and $525,000 in current liabilities. Its initial inventory level is $375,000, and it will raise