Asked by Savanna Griffin on May 01, 2024
Verified
Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?
Government Securities
Government Securities are financial instruments issued by the government to borrow money from investors, such as Treasury bonds, bills, and notes.
Bank Assets
Bank assets are resources owned by a bank, including loans, securities, and cash, which generate income.
- Understand the mechanics of how bank transactions affect asset and liability structures.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
In this case, the value of bank assets do not change. Recall, reserves and securities are recorded as assets for the bank. When the bank receives $50 of securities its assets increase by $50. However, the purchase of securities decreased reserves by $50. The net effect is no change in assets.
Learning Objectives
- Understand the mechanics of how bank transactions affect asset and liability structures.