FIN100. Week 3 Homework

Chapter 5

1.      Assume that GABBY BANK receives two separate primary deposits of $1.2 million each.  The bank must keep reserves of 20 percent against its deposits.  Prepare a simple balance sheet of assets and liabilities for GABBY BANK immediately after the deposit is received.

ASSETS

LIABILITIES

$480,000

$1.2 million

$1,920,000

$1.2 million

$2.4 million

$2.4 million

2.      Assume a financial system has a monetary base of $24.12 million. The required reserves ratio is 7.3 percent and there are no leakages in the system.

a.       What is the size of the money multiplier?

mm = 1 / 0.073 = 13.70

b.    What will be the system’s money supply?

m1 = mb * mm = 24.12 * 13.70 = $330.44 million

Chapter 6

Assume that in 2013 the Australian dollar was trading at $0.4437, the Mexican peso at $0.2210, and the United Kingdom (British) pound was worth $1.6234.By the year 2014 the U.S. dollar value of an Australian dollar was $0.812, the Mexican peso at $0.0367, and the British pound was twice 2014 Australian dollar. Calculate the percentage appreciation or depreciation of each of these three currencies between last year and this year.