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Chapter 25: Problem 1

What are the largest asset and the largest liability of a typical bank?

Short Answer

Expert verified
The largest asset of a typical bank is the loans and advances it has given out, while the largest liability is the deposits from customers.

Step by step solution

01

Identify the largest asset of a bank

A bank's assets include everything that it owns that has value. The largest portion of a bank's assets typically comes from loans and advances it has issued to customers. These can range from personal loans, mortgages, business loans, and any other form of lending monetary support to individuals and businesses. So, the largest asset of a typical bank is the loans and advances it has given out.
02

Identify the largest liability of a bank

A bank's liabilities, on the other hand, are composed of what it owes to others. The largest chunk of a bank's liabilities comes from customer deposits. When customers deposit their money in a bank, the bank essentially owes that money back to the customers, thereby making it a liability. Therefore, the largest liability of a typical bank would be its deposits.

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Most popular questions from this chapter

Based on a Survey of Consumer Payment Choice, researchers from the Federal Reserve Bank of Boston estimated that the average consumer, 18 years of age and older, held about \(\$ 202\) in currency. However, as noted in the chapter, there is actually about \(\$ 4,500\) of currency in circulation for every person in the United States. a. How can the amount of U.S. currency in circulation be so much higher than the amount held by the U.S. population? b. What does the difference in part (a) imply about the measures of the money supply of the United States?

Briefly explain whether you agree with the following statement: "I recently read that more than half of the money the government prints is actually held by people in foreign countries. If that's true, then the United States is less than half as wealthy as government statistics indicate."

What does it mean to say that banks "create money"?

An article in the New York Times stated that "income is only one way of measuring wealth." Do you agree that income is a way of measuring wealth?

What is hyperinflation? Why do governments sometimes allow it to occur?
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