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You have just been appointed Managing Director of MCM Bank. To facilitate your work, the...

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Finance

You have just been appointed Managing Director of MCM Bank. To facilitate your work, the board of Directors have just mobilized a deposit of K100m as your initial resources for lending purposes. The market survey shows that 60% of your monthly loans are re-deposited in your bank by the end of each month. The bank of Zambia reserve requirements for deposits are 10%.

Your loan proposals are approved by your board, and immediately disbursed at the beginning of each month.

  1. On the basis of this deposit (K100m), use the t-account(s) to show your balance sheet that meets shareholders expectations of maximum possible profit at the end of 2 months in office (state all assumptions).
  2. Calculate the money multiplier
  3. By how much will the money supply increase if MCM bank decided not to hold any idle excess reserves.

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