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Managerial Accounting

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1. Three Functions of Money
A) Measure of value
B) Store of purchasing power
C) Store of purchasing power
D) Store of purchasing power
E) Means of exchange
F) Store of purchasing power

4. Bond Price Changes

A) A bond worth $10 000 initially and has an interest rate of 4 percent, annual interest rates would be $400.
A drop in interest rate to 2 percent means that the price of this bond rises to $20 000. (.02 x $20 000 = $400).

B) A rise in interest rate to 6 percent causes the price of this bond to decline to $6667 (.06 x $6667 = $400).

5. Hudson Bank

A) Desired reserves are .05 x $10 million =$500 000.
Actual reserves are $600 000, it has $100 000 in excess reserves.( $600 000 - $500
000)

B) Hudson Bank can lend out all $100 000 in excess reserves to increase in the money supply.

6.Champlain Bank
Desired reserves are 04 x $5 million = $200 000.
Actual reserves are $200 000.
If $15 000 is deposited , deposits rise to $5 015 000, so desired reserves become .04 x $5 015 000= $200 600. The Bank now has $215 000 in actual reserves and its excess reserves are now $14 400.

Credit cards are not part of the money supply because they would be considered un-secure loans and loans are not considered to be "money". The flow of money is only counted when it is actually paid and when used for purchases its considered a loan until payment is

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