This exercise utilizes two balance sheets, one for the Federal Reserve and one for Bank of Ame aca, a In January 2021, the Fed issued a statement saying it will continue to increase its holdings of Treasury securities by at least 580 billion per month and of agency mortgage-backed securities by at least $40 billion per month." Note that Treasury securities are also called Treasury bonds. Note too that agency mortgage-backed securities are labeled as "other bonds" in the following balance sheet of the Fed. Assuming that Bank of America is the only bank that is going to undertake these transactions with the Federal Reserve, show how the Fed's as well as Bank of America's balance sheet will change. (In practice, the Fed would buy these bonds from many banks, but for the purpose of this exercise, assume that the Fed buys both the Treasury securities and the agency mortgage-backed securities-other bonds-exclusively from Bank of America.) Given the following balance sheet showing the Fed's initial position, suppose the Federal Reserve increases its holdings of Treasury securities by $100 billion and increases its holdings of agency mortgage-backed securities by $40 billion. Treasury Bonds Other bonds Total Assets Assets Federal Reserve Bank System (All values in billions of dollars) Liabilities and Shareholders' Equity Assets Treasury Bonds Other bonds Total Assets 5,000 1,000 6,000 Reserves Currency Total Liabilities After the transaction is completed, show how the Fed's balance sheet will look. (You must enter six integer values, one for each balance sheet item.) Federal Reserve Bank System (All values in billions of dollars) Liabilities and Shareholders' Equity 4,000 2,000 Reserves Currency Total Liabilities 6,000
This exercise utilizes two balance sheets, one for the Federal Reserve and one for Bank of Ame aca, a In January 2021, the Fed issued a statement saying it will continue to increase its holdings of Treasury securities by at least 580 billion per month and of agency mortgage-backed securities by at least $40 billion per month." Note that Treasury securities are also called Treasury bonds. Note too that agency mortgage-backed securities are labeled as "other bonds" in the following balance sheet of the Fed. Assuming that Bank of America is the only bank that is going to undertake these transactions with the Federal Reserve, show how the Fed's as well as Bank of America's balance sheet will change. (In practice, the Fed would buy these bonds from many banks, but for the purpose of this exercise, assume that the Fed buys both the Treasury securities and the agency mortgage-backed securities-other bonds-exclusively from Bank of America.) Given the following balance sheet showing the Fed's initial position, suppose the Federal Reserve increases its holdings of Treasury securities by $100 billion and increases its holdings of agency mortgage-backed securities by $40 billion. Treasury Bonds Other bonds Total Assets Assets Federal Reserve Bank System (All values in billions of dollars) Liabilities and Shareholders' Equity Assets Treasury Bonds Other bonds Total Assets 5,000 1,000 6,000 Reserves Currency Total Liabilities After the transaction is completed, show how the Fed's balance sheet will look. (You must enter six integer values, one for each balance sheet item.) Federal Reserve Bank System (All values in billions of dollars) Liabilities and Shareholders' Equity 4,000 2,000 Reserves Currency Total Liabilities 6,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:This exercise utilizes two balance sheets, one for the Federal Reserve and one for Bank of America, a representative member of the banking system.
In January 2021, the Fed issued a statement saying it will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency
mortgage-backed securities by at least $40 billion per month."
Note that Treasury securities are also called Treasury bonds. Note too that agency mortgage-backed securities are labeled as "other bonds" in the following
balance sheet of the Fed. Assuming that Bank of America is the only bank that is going to undertake these transactions with the Federal Reserve, show how the
Fed's as well as Bank of America's balance sheet will change. (In practice, the Fed would buy these bonds from many banks, but for the purpose of this exercise,
assume that the Fed buys both the Treasury securities and the agency mortgage-backed securities-other bonds-exclusively from Bank of America.)
Given the following balance sheet showing the Fed's initial position, suppose the Federal Reserve increases its holdings of Treasury securities by $100 billion and
increases its holdings of agency mortgage-backed securities by $40 billion.
Treasury Bonds
Other bonds
Total Assets
Assets
Federal Reserve Bank System (All values in billions of dollars)
Liabilities and Shareholders' Equity
Total Assets
Treasury Bonds
Other bonds
Assets
5,000
1,000
6,000
After the transaction is completed, show how the Fed's balance sheet will look (You must enter six integer values, one for each balance sheet item.)
Federal Reserve Bank System (All values in billions of dollars)
Liabilities and Shareholders' Equity
Reserves
Currency
Total Liabilities
4,000
2,000
6,000
Reserves
Currency
Total Liabilities
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