A bank with long-term fixed-rate assets funded with short-term rate-sensitive liabilities could do which of the...
A bank with long-term fixed-rate assets funded with short-term rate-sensitive liabilities could do which of the following to limit their interest rate risk? I. Buy a cap. II. Buy an interest rate swap. III. Buy a floor. IV. Sell an interest rate swap. I and II only III only I and IV only II and III only III and IV only
Homework Answers
Answer: I and II only
To limit their interest rate risk it should buy a cap, buy an
interest rate swap
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A bank with long-term fixed-rate assets funded with short-term
rate-sensitive liabilities could do which of the...
A company has funded 10 percent fixed-rate assets with variable-rate liabilities at LIBOR + 2 percent....
A company has funded 10 percent fixed-rate assets with variable-rate liabilities at LIBOR + 2 percent. A bank has funded variable-rate assets with fixed-rate liabilities at 6 percent. The bank's variable-rate assets earn LIBOR + 1 percent. The company and the bank have reached agreement on an interest-rate swap with the fixed-rate swap payment at 6 percent and the variable-rate swap payment at LIBOR. Briefly discuss your results. What will be the net after-swap yield on assets for the bank?
Consider a bank that has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25...
Consider 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 the manager of this bank take to reduce the bank's interest-rate risk?
Rate-Sensitive Bank Assets Liabilities $5 Variable-rate Loans Short-term Loans Short-term Securities Reserves Variable-rate CDs Money Market...
Rate-Sensitive Bank Assets Liabilities $5 Variable-rate Loans Short-term Loans Short-term Securities Reserves Variable-rate CDs Money Market Deposit Accounts Checkable Deposits Savings Deposits Long-term CDs Equity Capital Long-term Loans Long-term Securities 30 30 Referring to the table above, and using basic gap analysis, this bank's "gap" is $ million. (Round your response to the nearest whole number.) Referring to the table above, if interest rates suddenly increase by two percentage points, then the bank's profits change by $ whole number.) (Round...
An FI's balance sheet is characterized by short-term fixed-rate assets funded by long-term variable-rate securities. Most...
An FI's balance sheet is characterized by short-term fixed-rate assets funded by long-term variable-rate securities. Most likely the bank has a positive repricing gap and a positive duration gap. O positive repricing gap and a negative duration gap. negative repricing gap and a positive duration gap. negative repricing gap and a negative duration gap. None of the options are correct.
Assets: $200 Reserves; $5000 Short term Bonds; $6000 Long Term Loans Liabilities: $7000 Checkable Deposits; $3000 Fixed...
Assets: $200 Reserves; $5000 Short term Bonds; $6000 Long Term Loans Liabilities: $7000 Checkable Deposits; $3000 Fixed Rate Borrowings; $1200 Capital What is the Gap for this bank and what does it measure? What (be specific) could the bank do to create a gap of zero?
Wales Bank - Summary Balance Sheet, £m Interest Assets Yield Rates Liabilities Rate-sensitive 500 6.0% 600...
Wales Bank - Summary Balance Sheet, £m Interest Assets Yield Rates Liabilities Rate-sensitive 500 6.0% 600 2.0% Fixed-rate 350 9.0% 220 4.0% Non-earning/Non-paying 150 0.0% 100 0.0% Total 920 Equity 80 Total 1.000 1,000 [ii] The Monetary Policy Committee at the Bank of England has raised interest rates by 0.5%. To determine interest rate risk, use GAP analysis to show the effect of the rise in rates on the profitability of Wales Bank. [5 marks] Wales Bank -Summary Balance Sheet,...
Assets: $200 Reserves; $5000 Short term Bonds; $6000 Long Term Loans Liabilities: $7000 Checkable Deposits; $3000 Fixed...
Assets: $200 Reserves; $5000 Short term Bonds; $6000 Long Term Loans Liabilities: $7000 Checkable Deposits; $3000 Fixed Rate Borrowings; $1200 Capital If market interest rates fall by 2%, how will bank profits change?
1. Sterling Rope has Net Working Capital of 640, long term debt of 4,180, total assets...
1. Sterling Rope has Net Working Capital of 640, long term debt of 4,180, total assets of 6,230, and fixed assets of 3,910. What are its total liabilities? 2. HOLY SHIP!!! Inc. has sales of 52,000, costs of 27,300, a change in retained earnings of 5,300, dividends of 1,800, and interest expense of 4,900. They have a tax rate of 34%. What is their depreciation expense? *hint work backwards up the income statement 3. Which of the following are included...
Interest Costs Assets Yield Rates Liabilities Rate-sensitive 500 600 Fixed-rate 350 220 Non-earning/Non-paying 150 100 Total...
Interest Costs Assets Yield Rates Liabilities Rate-sensitive 500 600 Fixed-rate 350 220 Non-earning/Non-paying 150 100 Total 920 Equity 80 [ii] The Monetary Policy Committee at the Bank of England has raised interest rates by 0.5%. To determine interest rate risk, use GAP analysis to show the effect of the rise in rates on the profitability of Wales Bank.
(6 points) 3. The bank you own has the following balance sheet Liabilities with current interest rate Assets with...
(6 points) 3. The bank you own has the following balance sheet Liabilities with current interest rate Assets with current interest rate $5million $20 million Variable: 1% Checking Fixed: 0% Reserves deposits Savings Deposits $25 million Fixed: 2% $10 million Variable: 2% Government Securities Variable: 3 % $10 million Money Market Deposit Accounts $35 million Fixed: 6% Mortgage Loans Bank Capital To be To be $10 million Variable: 7% Short-Term determined determined Loans Business $20 million Fixed: 9% Loans $80...
Consider 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 the manager of this bank take to reduce the bank's interest-rate risk?
Rate-Sensitive Bank Assets Liabilities $5 Variable-rate Loans Short-term Loans Short-term Securities Reserves Variable-rate CDs Money Market Deposit Accounts Checkable Deposits Savings Deposits Long-term CDs Equity Capital Long-term Loans Long-term Securities 30 30 Referring to the table above, and using basic gap analysis, this bank's "gap" is $ million. (Round your response to the nearest whole number.) Referring to the table above, if interest rates suddenly increase by two percentage points, then the bank's profits change by $ whole number.) (Round...
An FI's balance sheet is characterized by short-term fixed-rate assets funded by long-term variable-rate securities. Most likely the bank has a positive repricing gap and a positive duration gap. O positive repricing gap and a negative duration gap. negative repricing gap and a positive duration gap. negative repricing gap and a negative duration gap. None of the options are correct.
Wales Bank - Summary Balance Sheet, £m Interest Assets Yield Rates Liabilities Rate-sensitive 500 6.0% 600 2.0% Fixed-rate 350 9.0% 220 4.0% Non-earning/Non-paying 150 0.0% 100 0.0% Total 920 Equity 80 Total 1.000 1,000 [ii] The Monetary Policy Committee at the Bank of England has raised interest rates by 0.5%. To determine interest rate risk, use GAP analysis to show the effect of the rise in rates on the profitability of Wales Bank. [5 marks] Wales Bank -Summary Balance Sheet,...
1. Sterling Rope has Net Working Capital of 640, long term debt of 4,180, total assets of 6,230, and fixed assets of 3,910. What are its total liabilities? 2. HOLY SHIP!!! Inc. has sales of 52,000, costs of 27,300, a change in retained earnings of 5,300, dividends of 1,800, and interest expense of 4,900. They have a tax rate of 34%. What is their depreciation expense? *hint work backwards up the income statement 3. Which of the following are included...
Interest Costs Assets Yield Rates Liabilities Rate-sensitive 500 600 Fixed-rate 350 220 Non-earning/Non-paying 150 100 Total 920 Equity 80 [ii] The Monetary Policy Committee at the Bank of England has raised interest rates by 0.5%. To determine interest rate risk, use GAP analysis to show the effect of the rise in rates on the profitability of Wales Bank.
(6 points) 3. The bank you own has the following balance sheet Liabilities with current interest rate Assets with current interest rate $5million $20 million Variable: 1% Checking Fixed: 0% Reserves deposits Savings Deposits $25 million Fixed: 2% $10 million Variable: 2% Government Securities Variable: 3 % $10 million Money Market Deposit Accounts $35 million Fixed: 6% Mortgage Loans Bank Capital To be To be $10 million Variable: 7% Short-Term determined determined Loans Business $20 million Fixed: 9% Loans $80...
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