Final answer:
A bank's assets on the balance sheet, such as loans, may not be physically present due to the fractional reserve system. For money supply classifications, $1 in quarters and $1200 in a checking account count as M1, while $2000 in a money market account is M2. Traveler's checks are part of M1, and a credit line is neither. In secondary loan markets, buyers adjust the price they're willing to pay based on borrower reliability and shifts in economy-wide interest rates.
Step-by-step explanation:
Understanding a Bank's Balance Sheet and M1, M2 Classifications
When it comes to a bank's balance sheet, the money listed under assets might not actually be present physically in the bank. This is because banks operate on a fractional reserve system, where they hold a fraction of the bank's deposits in reserve and lend out the remainder. As a result, although assets such as loans and investments are counted on the balance sheet, the actual cash might be distributed amongst various borrowers and invested in different financial instruments.
Regarding the M1 and M2 money supply:
M1 includes currency in circulation, traveler's checks, demand deposits, and other checkable deposits. Therefore, $1 in quarters in your pocket and $1200 in your checking account are included in M1.
M2 includes M1 plus short-term time deposits, savings deposits, and non-institutional money market funds. The $2000 in a money market account falls under M2, but not M1.
Your $5,000 line of credit is not included in either M1 or M2 because it represents potential borrowing, not actual money in circulation.
The $50 in traveler's checks would be part of M1 since they are a form of checkable deposit, readily available for spending.
When purchasing loans in the secondary market:
You are likely to pay less for a loan if the borrower has been late on a number of loan payments due to increased risk of default.
You might also pay less if interest rates have risen since the loan was made, as the loan is now less competitive compared to new loans with higher rates.
Conversely, you would pay more for a loan if the borrower is a firm that has recently declared a high level of profits, indicating lower risk.
If interest rates have fallen, existing loans with higher rates become more valuable, so you would be willing to pay more for such loans.