Which of the following transactions results in Alpha Bank destroying bank deposits in its own balance sheet?A.Alpha Bank receives dividends from its customers.B.Alpha Bank pays a coupon to its customers.C.Alpha Bank's customer receives a salary from a depositor at another bank.D.Alpha Bank buys a financial instrument issued by its customers.E.None of the above transactions destroy money in Alpha Bank.
Question
Which of the following transactions results in Alpha Bank destroying bank deposits in its own balance sheet?A.Alpha Bank receives dividends from its customers.B.Alpha Bank pays a coupon to its customers.C.Alpha Bank's customer receives a salary from a depositor at another bank.D.Alpha Bank buys a financial instrument issued by its customers.E.None of the above transactions destroy money in Alpha Bank.
Solution 1
The correct answer is B. Alpha Bank pays a coupon to its customers.
When Alpha Bank pays a coupon (interest payment) to its customers, it reduces the bank's liabilities (deposits) on its balance sheet. This is because the bank is transferring money from its own accounts to the accounts of its customers. Therefore, this transaction results in Alpha Bank destroying bank deposits on its own balance sheet.
The other transactions listed do not result in the destruction of bank deposits on Alpha Bank's balance sheet. Receiving dividends (A) or buying a financial instrument (D) would not reduce the bank's liabilities. A customer receiving a salary from a depositor at another bank (C) would increase, not decrease, the bank's liabilities. Therefore, none of these transactions would result in the destruction of bank deposits on Alpha Bank's balance sheet.
Solution 2
The correct answer is B. Alpha Bank pays a coupon to its customers.
When Alpha Bank pays a coupon (interest payment) to its customers, it reduces the bank's liabilities (deposits) on its balance sheet. This is because the bank is transferring money from its own accounts to the accounts of its customers. Therefore, this transaction results in Alpha Bank destroying bank deposits on its own balance sheet.
The other transactions listed do not result in the destruction of bank deposits on Alpha Bank's balance sheet. Receiving dividends (A) or buying a financial instrument (D) would not reduce the bank's liabilities. A customer receiving a salary from a depositor at another bank (C) would increase, not decrease, the bank's liabilities. Therefore, none of these transactions would result in the destruction of bank deposits on Alpha Bank's balance sheet.
Solution 3
The correct answer is B. Alpha Bank pays a coupon to its customers.
Here's why:
A. Alpha Bank receives dividends from its customers. This transaction would increase the bank's assets, not decrease its deposits.
B. Alpha Bank pays a coupon to its customers. This is correct. When a bank pays interest (or a "coupon") to its customers, it reduces the amount of deposits it has. This is because the bank is essentially transferring money from its own accounts to the accounts of its customers.
C. Alpha Bank's customer receives a salary from a depositor at another bank. This transaction would increase the deposits at Alpha Bank, not decrease them.
D. Alpha Bank buys a financial instrument issued by its customers. This transaction would decrease the bank's cash assets, but it wouldn't directly affect its deposits.
E. None of the above transactions destroy money in Alpha Bank. This is not correct because option B does result in Alpha Bank destroying bank deposits in its own balance sheet.
Similar Questions
Which of the following transactions violates the balance sheet equation? (check all that apply)1 pointIncrease an expense and reduce a liabilityIncrease a liability and increase a revenueIncrease cash and reduce contributed capitalReduce cash and reduce an expenseIncrease retained earnings and increase a liability
Which of the following would cause a bank to debit a customer's account?Select answer from the options belowinterest receivedbank chargescash depositEFT for an account receivable
5. When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet A) the assets at the bank increase by $800,000. B) the liabilities of the bank increase by $1,000,000. C) the liabilities of the bank increase by $800,000. D) reserves increase by $160,000. 6. Which of the following statements are TRUE? A) A bank's assets are its sources of funds. B) A bank's liabilities are its uses of funds. C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital. D) A bank's balance sheet indicates whether or not the bank is profitable. 7. Which of the following statements is FALSE? A) A bank's assets are its uses of funds. B) A bank issues liabilities to acquire funds. C) The bank's assets provide the bank with income. D) Bank capital is recorded as an asset on the bank balance sheet.
Which of the following statements are TRUE?A) A bank's assets are its sources of funds.B) A bank's liabilities are its uses of funds.C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital.D) A bank's balance sheet indicates whether or not the bank is profitable
Which of the following evets will cause a reduction in the total amount of reserves in the banking system, all else the same?Group of answer choicesBrad buys something from the grocery store using his ATM card.Geroge withdraws $1,000 for his checking account and pays it to Susan, who deposits it in her at her account in Bank B.Ian withdraws $10,000 from his deposit account and keeps it under his mattress.Someone pays back his loan to Bank A by writing a check on his account at Bank B.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.