Loans to corporations: 85 - Loans to households: 60 - QB Holdings of shares and bonds: 100 - Retail current account deposits: 225 - Commercial current account deposits: 90 - Tangible assets and property: 130 - Cash in vaults: 35 - Reserve deposits with the Bank of England: 70 - Borrowing by Bank in the money market: 100 a) Construct a balance sheet for QBank with each of the above items included. b) Calculate QBank’s net worth and show where it appears on the balance sheet c) Which of QBank balance sheet items should be included in a standard definition of “bank money”? d) QBank makes a personal loan of £10,000 to Mr A, and credits his current account with the amount of the loan. Describe the initial impact on QBank’s balance sheet, the money supply, and the net worth of both QBank and Mr A. e) Mr A then withdraws £10,000 in cash with which he pays Ms B for building work. She immediately deposits it in her current account with another bank, RBank. What is the impact on QBank’s balance sheet, and on the aggregate money supply? f) Financial media report that QBank has made “significant” capital losses on some of its financial investments, as well as suffering high default rates on its loans to households. Discuss the possible consequences, using the information in your earlier answers.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Loans to corporations: 85

- Loans to households: 60

- QB Holdings of shares and bonds: 100

- Retail current account deposits: 225

- Commercial current account deposits: 90

- Tangible assets and property: 130

- Cash in vaults: 35

- Reserve deposits with the Bank of England: 70

- Borrowing by Bank in the money market: 100

a) Construct a balance sheet for QBank with each of the above items included.
b) Calculate QBank’s net worth and show where it appears on the balance sheet
c) Which of QBank balance sheet items should be included in a standard definition of “bank money”?
d) QBank makes a personal loan of £10,000 to Mr A, and credits his current account with the amount of the loan. Describe the initial impact on QBank’s balance sheet, the money supply, and the net worth of both QBank and Mr A.
e) Mr A then withdraws £10,000 in cash with which he pays Ms B for building work. She immediately deposits it in her current account with another bank, RBank. What is the impact on QBank’s balance sheet, and on the aggregate money supply?
f) Financial media report that QBank has made “significant” capital losses on some of its financial investments, as well as suffering high default rates on its loans to households. Discuss the possible consequences, using the information in your earlier answers.

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d) QBank makes a personal loan of £10,000 to Mr A, and credits his current account with the amount of the loan. Describe the initial impact on QBank’s balance sheet, the money supply, and the net worth of both QBank and Mr A.

e) Mr A then withdraws £10,000 in cash with which he pays Ms B for building work. She immediately deposits it in her current account with another bank, RBank. What is the impact on QBank’s balance sheet, and on the aggregate money supply?

f) Financial media report that QBank has made “significant” capital losses on some of its financial investments, as well as suffering high default rates on its loans to households. Discuss the possible consequences, using the information in your earlier answers.

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