172k views
5 votes
In 2011 Osgood Corporation purchased $4 million in 10-year municipal bonds at face value. On December 31, 2013, the bonds had a market value of $3.6 million and Osgood reclassified the bonds from held to maturity to trading securities. Osgood's December 31, 2013, balance sheet and the 2013 income statement would show the following:

1 Answer

6 votes

Final answer:

When the Fed conducts an open market purchase of Treasury bonds from a bank, it will result in several balance sheet changes for the bank.

Step-by-step explanation:

When the Fed conducts an open market purchase of Treasury bonds from Acme Bank, it buys $10 million in Treasury bonds from the bank. This transaction will result in several balance sheet changes for Acme Bank. The bank's reserves will increase by $10 million, its bonds will decrease by $10 million, and its loans will increase by $10 million. The impact on liabilities is that deposits will remain the same at $300 million, while equity will stay the same at $30 million. The bank's reserves will increase by the purchase amount, bonds will decrease by the purchase amount, and loans will increase by the purchase amount.

User Luxdvie
by
7.9k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.