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Credit cards charge merchants a percentage. Bank accounts might have a periodic account maintenance charge. Money remittance companies charge a fee and presumably half the currency bid-ask spread. Existing cryptocurrencies create scarcity in a way that produces pollution if the electrical generators use natural gas and coal. If an alternative eliminates some ...


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If a startup raises 10 million dollars, then spends 10 million dollars, and achieves nothing for it, their assets are zero and their liabilities are zero, so their equity is zero. The shares aren't worth 10 million dollars any more. They're worth zero.


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You are concerned about... someting that can save the bank from bankruprtcy it problems occurs, when there is no money This is an accounting question as much as an economics question. What you are asking about is "solvency". assets minus liabilities equals equity The bank or any company is solvent by definition if equity is positive and ...


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I revised this answer to more directly address the question posed. Apply the Charts of Account shown in the hypothetical bank balance sheet of this 4 page paper: https://www.richmondfed.org/~/media/richmondfedorg/publications/research/economic_brief/2012/pdf/eb_12-03.pdf Then your new bank holds 10M cash when it issues 10M paid-in equity. The bank uses the ...


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Equity equals assets minus liabilities. If a bank “spent everything,” assets would be zero, and so equity would have to have been written down to zero. Expenses - including capital depreciation - generate losses that reduce equity unless there are offsetting sources of revenue. However, this is way too simplistic for discussion of a bank. Banking is a ...


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But it still raises the issue: how does e.g. a US consumer get their hands on digital Yuans with which to pay something that they buy directly from China (e.g. via Alibaba)? Any exchange that would sell those digital Yuans that would have to take dollars in, no? Not necessarily dollars... you could sell anything to China in exchange for some Yuans. If you'...


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WACC is the weighted average cost of capital - the price of money for the firm. All else equal, lower is always better.


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Depends on the structure. In the US, most residential MBS are pass-through, so the MBS is prepaid. In Canada, MBS are (or at least were) mostly packaged into non-passthrough structures, so MBS cash flows follow fixed coupon schedule. There are prepayment penalties which are used to absorb the cash flows. My understanding is that European pfandebriefe ...


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Edited in response to down vote. To answer the question we need to describe a reasonable econometric model that shows what happens when the borrower repays principal and interest to the bank and we need an aggregate model for where these payments "come from" on the whole economy. This four page paper shows the accounting context with a simplified ...


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The total nominal income of the domestic economy is equal to nominal GDP growth. This chart shows nominal GDP growth for the U.S.: link to FRED graph. If you dig into the numbers, we see that nominal GDP growth is often higher than most interest rates. So total income is growing faster than interest costs. You cannot look at one loan in isolation and hope to ...


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There’s no inconsistency between allowing fractional reserve banking and banning naked short selling. Banks generally lend out money that they borrow (setting aside capital lent), and if one lends out a stock that one has borrowed, that’s not a naked short position, it’s just a plain short. What’s illegal about “naked” shorting (in the U.S.) is selling a ...


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The Treasury Department of the U.S. federal government sends the checks. Assume all such payments go to customers of commercial banks and add to their checking deposit balances. The short answer to the question is as follows. If Treasury uses debt management then on average it does not increase the M2 money supply as measured on the aggregate balance sheet ...


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Correcting some incorrect statements in question: It is also said that 40% of all the m2 money supply in circulation has been put in "created" during the pandemic. No, your own graph shows that is false. According to the data on M2 provided by FRED dataset and also the same data as shown above, money supply as measured by M2 increased during ...


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There are many parts to this question, I will offer a minimal answer. The Treasury writes the checks. The Treasury is the fiscal arm of the Federal Government, which banks at the Federal Reserve - which is a bank. There are no reserves held against the Treasury’s funds - since the Federal Reserve does not hold reserves at itself. (Bank reserves are deposits ...


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The movie over-simplifies the large banks' attitudes somewhat. In reality, they differed: some banks limited their exposure to junk debt (I will use this term because there was junk other than subprime mortgages involved). They'd buy up a little junk, repackage it into new instruments, and re-sell their instruments to clients. So their own exposure to the ...


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Executive compensation schemes award wages, stock options, bonus incentives to the managers in the financial sector. Typically executive compensation is maximized when the firm expands assets rapidly. So managers have personal profit incentives to increase leverage in the balance sheet and increase risk in the financial asset portfolios of their respective ...


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