Transaction No. 6.
Chase: There is only a transfer of ownership in the deposits.
German Commercial Banks: Decreases its claims on Chase, but increases its claims on
Citibank by a fraction of their Euro-dollar balances.
Citibank: It has acquired a claim on chase, and a Euro-dollar debt.
Money supply of U.S. and Germany remain constant.
Balance of payments of both countries which can now be lent.
Transaction No. 7.
Chase: It has $81 of excess reserves which can now be lent.
Money supply in U.S. remains constant as the deposits created by Citibank are really at
the expense of the deposits and loans that Chase gave up.
Balance of payments remains unaffected.
- XYZ Trading Co., of the United Kingdom receives $1,000,000 in payment for exports
to ABC Electronic of Philadelphia, Pa. (XYZ Co. banks with Barclays-London, and ABC
banks with Philadelphis Security Bank S 0 $/£ = 1.25.)
a) XYZ Trading Co. keeps amount in deposit in Philadelphia Security Bank.
b) XYZ Trading Co. asks its bank to transfer export proceeds to its account in
pounds sterling.
c) Instead of (b), XYZ Trading Co. transfers dollar proceeds from Philadelphia
Security Bank, and places it with its own bank as a time deposit denominated in
dollars.Show the above transactions in T accounts of Barclays and Philadelphia Security Bank.