Consider a Situation Where an Individual Sold a Car for $20,000

question 69

Essay

Consider a situation where an individual sold a car for $20,000 and then deposited the $20,000 he received into his checking account at the bank. With that information, answer the questions that follow.
-After the initial deposit,the bank decides to lend out the legally maximum amount of funds to borrowers who do business at other banks.If the required reserve ratio is 25%,write out the bank's balance sheet and include the entries for required reserves,excess reserves,loans,and deposits.

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Definitions:

Exchange Rate System

The method by which the value of one currency is fixed or determined in relation to other currencies, such as through floating or fixed exchange rate regimes.

Industrially Advanced Nations

Countries that have highly developed industries and infrastructure, often characterized by high levels of income, technological innovation, and standard of living.

Managed Float

A currency exchange rate policy where the central bank allows the currency value to fluctuate in the foreign exchange market but intervenes to prevent excessive movements.

Fixed Rate System

A monetary system in which exchange rates are set and maintained at a certain level by a government or central bank.