Discuss the benefits and costs of public ownership of central banks by giving examples from central banks around the world for each of your arguments

Instructions:
1. Please answer all questions.
2. Answers should be typed in MS Word (.docx) if possible and submitted in PDF format. If this is not possible, pictures of handwriting will be accepted conditional on the picture being readable. If the picture is not clear and readable, your answer will be considered null and void.
3. Pay attention to the word limits in some of the questions or sub-questions.
4. Be precise in your answers and refer to all of the concepts needed to understand your answer.

Question 1
Using T-accounts, please record the following transactions.
a) M&B Bank PLC (“the bank”) is incorporated with equity capital of £10 million. [1 point]
b) The bank issues deposits to customers for £30 million. [1 point]
c) The bank issues bonds for £20 million. [1 point]
d) The bank must maintain 10% of assets in required reserves at all times. Please discuss the role of required reserves as a monetary policy tool by central banks. [5 points]
e) After setting aside the required reserves, the bank decides to invest the remaining amount of cash. The bank invests £10 million in a coupon bond issues by UK Treasury. What is left is loaned out. [1 point]
f) The coupon bond of point (e) pays a coupon of 5% per year, paid semi-annually. It has 3 years to maturity. If the current Yield-to-Maturity is 2.5% semi-annually, what is the price of the bond? [4 points]
g) A year later, the Bank of England is worried by rising inflation and announces its intention to raise interest rates. This announcement immediately sends the Yield-to-Maturity of bond in point (f) surging 200 basis points. Recalculate the price of the bond. [4 points]
h) What is the Holding Period Return recorded on the bond position over the past year? [1 point]
i) What is the Profit-and-Loss recorded on the bond position in Pound Sterling (£)? [1 point]
j) Record the result of point (g) in the T-accounts. [1 point]
k) If your result is a loss, please discuss if the bank has enough equity capital to support that loss. [5 points]
l) Please discuss the Basel Capital accords. Focus in particular on capital requirements and their calculation. [5 points]

Question 2
Use the supply and demand analysis of the market for reserves to visually illustrate and explain how the following scenarios may arise in equilibrium.
[Note: most marks will be awarded on the basis of a correct explanation of the economic intuition of each scenario.]
a) Central bank selling securities to banks increases the federal funds rate. [7 points]
b) Increase in discount rate lowers the amount of borrowed reserves. [7 points]
c) A decrease in reserve requirements leading to a decrease in the amount of reserves. [7 points]
d) The central bank introducing special interest rates (lower than usual) for commercial banks lowers the federal funds rate. [7 points]
e) A market panic leading to a deposit outflow from banks and increasing the federal funds rate. [7 points]

Question 3
a) Discuss the benefits and costs of public ownership of central banks by giving examples from central banks around the world for each of your arguments. [10 points]
[Word limit: 300 words]
b) Discuss what will happen to the value of the pound in the short run and in the long run if the Bank of England lowers interest rates to reduce unemployment [10 points]
[Word limit: 300 words]
c) Discuss the effects that COVID-19 may have had on the money multiplier. Give at least two examples of central bank policies around the world undertaken to mitigate such effects (give references to the appropriate media sources for your examples).