代写Economics 411 - Money and Banking Spring 2024 Homework 2代做Java语言

Economics 411 - Money and Banking Spring 2024

Homework 2

Due April 23, 2024

1        Short-answer Questions

1.  [Q.2 Ch.9] Suppose Melvin’s Bank starts with the balance sheet in Table 9.4A (given below). Then the bank sells $10 of loans for $10 of cash.

Table 9.4 Liquidity Risk at Melvin’s Bank
(A) Initial Balance Sheet		(B) Balance Sheet After $50 Withdrawal
Assets	Liabilities and Net Worth	Assets	Liabilities and Net Worth
Reserves 10	Checking Deposits 50	Reserves 0	Checking Deposits                     50
Securities 30	Non-transaction Deposits         50	Securities 0	Non-transaction Deposits 0
Loans 80	Net Worth 20	Loans 60	Net Worth 10
TOTAL              120	TOTAL 120	TOTAL 60	TOTAL 60

(a)   What is the immediate effect of the balance sheet?

(b)   After the loan sale, what additional transactions is the bank likely to make? What will the balance sheet look like after these transactions?

2.  [Q.6 Ch.10] Suppose  Melvin’s  Bank can make a bet  on derivatives that has a 2/3  probability of earning $20 and 1/3 probability of losing $40.

(a)   Assume  Melvin has $20 in capital. What are the possible costs and  benefits of the bet for Melvin and the deposit insurance fund? Is Melvin likely to make the bet?

(b)   How are the answers in part (a) different if Melvin’s Bank has $50 in capital? What if it has $0 in capital?

(c)   In light of these examples, discuss the benefits of (i) capital requirements, (ii) bank supervision, and (iii) quick closure of insolvent banks.