ike Bank
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ike Bank starts with $3000 in bank capital. It then accepts $2000 in deposits. It keeps 25 percent of deposits in reserve. It uses the rest of its assets to make bank loans.
a. Show the
b. What is Like Bank’s leverage ratio?
c. Suppose that 15 percent of the borrowers from like Bank default and these bank loans become worthless. Show the bank’s new balance sheet.
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- 2. Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5% (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans. A.) Show the balance sheet of Happy Bank. B.) What is Happy Bank’s leverage ratio? C.) Suppose that 10% of the borrowers from Happy Bank default and these bank loans become worthless. Show the bank’s new balance sheet. D.) By what percentage do the bank’s total assets decline? By what percentage does the bank’s capital decline? Which change is larger? Why?AAB Bank holds $100 in bank capital and $100 in securities, and then takes in $600 in deposits. It keeps 10 percent of deposits in reserve. It uses the rest of its reserves to make bank loans. a. Explain the balance sheet (T-account) for AAB Bank. b. What is AAB Bank's leverage ratio? c. Suppose that 10 percent of the borrowers from AAB Bank default and these bank loans become worthless. How does the bank's new balance sheet look? d. By what percentage do the bank's total assets decline? By what percentage does the bank's total capital decline? Which change is larger? Why? Is the bank still solvent and why?Use the information given in Upper Midwest National Bank's balance sheet to answer the following questions. Bank's Balance Sheet Assets Liabilities and Owners' Equity Reserves $200 Deposits $1,600 Loans $800 Debt $250 Securities $1,000 Capital (owners' equity) $150 Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and account. This would also bring the leverage ratio from its initial value of to a new value of Which of the following do bankers consider when deciding how to allocate their assets? Check all that apply. The total value of liabilities The size of the monetary base The riskiness of each asset the
- You manage a bank that has $500 million of fixed-rate assets, $600 million of rate-sensitive assets, $1000 million of fixed-rate liabilities, and $100 million of rate-sensitive liabilities. A. Do a gap analysis and show what will happen to bank profits if interest rates rise by 4%. Show your work. B. What happens to the bank’s profits if interest rates fall by 7%?Suppose you are the manager of a bank that has$15 million of fixed-rate assets, $30 million of ratesensitive assets, $25 million of fixed-rate liabilities,and $20 million of rate-sensitive liabilities. Conduct agap analysis for the bank, and show what will happento bank profits if interest rates rise by 5 percentagepoints. What actions could you take to reduce thebank’s interest-rate risk?Use the information presented in Northeastern Mutual Bank's balance sheet to answer the following questions. Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and increase/decrease the capital/ debt/ deposit/ loans/ reserves account. This would also bring the leverage ratio from its initial value of 14/ 14.80/ 16.10/ 18.20 to a new value of 14/ 14.80/ 16.10/ 18.20 Which of the following do bankers take into account when determining how to allocate their assets? Check all that apply. The size of the monetary base The total value of liabilities The return on each asset
- Lambrook Bank has the following assets and liabilities: Asset A has a maturity of 4 years and a market value of $600,000 and asset B has a maturity of 6 years and a market value of $800,000. Liability X has a maturity of 2 years and a market value of $200,000 and liability Y has a maturity of 5 years and a market value of $300,000. What is the maturity gap of the bank? . .We have the following information about a bank's balance sheet. Rate sensitive assets = $10,000,000 Fixed-rate assets = $20,000,000 Rate sensitive liabilities = $4,000,000 Fixed-rate liabilities = $26,000,000 Let's do a simple gap analysis. If the interest rate falls by 5 percent, O a. The bank will lose $300,000. O b. The bank will lose $500,000. O c. The bank will lose $200,000. O d. The bank will gain $300,000. O e. The bank will gain $200,000.PJ Morgan Bank has bank capital equal to 10% of total assets. Most of its deposits are short-term and adjustable rate. PJ Morgan's assets are long maturity and fixed rate. What is true of the bank? |- Bank capital will fall below 10% of total assets if interest rates increase. II - Bank profits will increase if interest rates drop. III - The bank will have to borrow from the Fed if interest rates increase. IV - The bank has a positive gap. O ,Il and IV O , II, II and IV O l and Il only O , II, and IV
- 1. Suppose you are the manager of a bank that has $15 million of fixed-rate assets, $30 million. of rate-sensitive assets, $25 million of fixed-rate liabilities, and $20 million of rate-sensitive liabilities. Conduct a gap analysis for the bank, and show what will happen to bank profits if interest rates rise by 5 percentage points. What actions could you take to reduce the bank's interest-rate risk?Suppose that you are the manager of a bank that has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25 million of fixed-rate liabilities, and $20 million of rate-sensitive liabilities. Conduct a gap analysis LOADING... for the bank, and show what will happen to bank profits if interest rates rise by 5 percentage points. The change in bank profits is $nothing million.Assume that there are 2 chartered banks and their T-accounts are below. Suppose that there are currently deposits of $850,000 in Bank A. Mohit borrows $100,000 from Bank A for a housing deposit to Cheng-Li. Cheng-Li takes that deposit and puts it into his bank, which is Bank B. The required reserve ratio is 18% for all banks. Assume that each bank will use the deposits to make loans and not save any for bank capital or bond purchases. You can use the following balance sheets, for Bank A and Bank B to help you answer the question: What are the reserves in Bank A before the money is borrowed from the bank? Bank A's Balance Sheet Reserves: Loans: Reserves: Loans: Answer: Assets Assets Liabilities Demand Deposits: Bank B's Balance Sheet Liabilities Demand Deposits:
