Homework Answers
The bank has fixed rate assets worth $15 million and fixed liabilities of $25 million.
While rate sensitive assets of the bank are of $30 million and rate sensitive liabilities are of $20 million.
The bank is working with a substantial risk due to its assets liabilities mismatch.
The bank needs to match its fixed rate liabilities with the corresponding fixed rate assets. Such matching of assets with liabilities will eliminate the risk of bank.
If the rate rises by 5%
•Effect on fixed rate assets and liabilities
There will be no effect on fixed rate assets and liabilities.
• Effect on rate sensitive assets and liabilities
The income from assets will rise by 1.5 million and the payment towards liabilities will rise by 1 million.
Overall effect will be a gain of 0.5 million.
What should the bank do to minimise its risk exposure?
The bank has a serious asset liabilities mismatch. The bank should divest its interest sensitive assets of worth $10 million and invest this corpus of $10 million in fixed rate assets to reduce its exposure. By doing so, the fixed payments towards the liabilities will be backed by the same amount of income from fixed rate assets.
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Consider a bank that has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25...
Question 2: Bank AAA has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25...
Question 2: Bank AAA has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25 million of fixed-rate liabilities, $20 million of rate- sensitive liabilities, 5 million of demand deposit, 10 million of securities, and 0.6 million of reserves. Assume that the required reserve is 10%. a. Reflect the above information in a T account. How much is the Net worth? b. Calculate the required reserve and the excess reserve if any, c. Conduct income gap analysis for the...
Suppose you are the manager of a bank whose $100 billion of assets have an average...
Suppose you are the manager of a bank whose $100 billion of assets have an average duration of four years and whose $90 billion of liabilities have an average duration of six years. Conduct a duration analysis for the bank, and show what will happen to the net worth of the bank if interest rates rise by 2 percentage points. What actions could you take to reduce the bank's interest-rate risk?
20. A bank has the following balance sheet: Assets Rate sensitive $225,000 Fixed rate 550.000 Nonearning...
20. A bank has the following balance sheet: Assets Rate sensitive $225,000 Fixed rate 550.000 Nonearning 120,000 $895,000 Avg. Rate 6.35% 7.55 Liabilities/Equity Rate sensitive $300,000 Fixed rate 505,000 Nonpaying 90,000 Total $895,000 Avg. Rate 4.25% 6.15 Total Suppose interest rates rise such that the average yield on rate-sensitive assets increases by 45 basis points and the average yield on rate-sensitive liabilities increases by 35 basis points. a. Calculate the bank's repricing GAP. b. Assuming the bank does not change...
If a bank has rate sensitive assets of $50 million and rate sensitive liabilities of $40...
If a bank has rate sensitive assets of $50 million and rate sensitive liabilities of $40 million, than an interest rate increase of 5 percentage points would cause net worth to(GAP Analysis) A. Increase $500 thousand B. Decrease by $500 thousand C Increase by $10 million D. All the previous answers are wrong Please Explain
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...
please solve question 4 and 5 4. A bank has the following balance sheet: Assets Rate...
please solve question 4 and 5
4. A bank has the following balance sheet: Assets Rate sensitive Fixed rate Nonearning Total Avg. Rate 7.75% 8.75 Avg Rate 6.25% 7.50 $550,000 955,000 565,000 $2,070,000 Liabilities/Equity Rate sensitive $375,000 Fixed rate 805,000 Nonpaying 890,000 Total $2,070,000 ise such that the average yield on rate-sensitive assets increases by 45 basis points and the average yield on rate-sensitive liabilities increases by 35 basis points. a) Calculate the bank's repricing GAP, gap to total assets...
(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...
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.
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,...
4. The managers of Bay View Bank asks for a performance/risk analysis, and asks you to...
4. The managers of Bay View Bank asks for a performance/risk analysis, and asks you to answer the following questions. The Bay View Bank's balance sheet is as follows: Assets: Securities Long-term Loans 5% rate $200 million S 800 million $1000 million Ave. Duration 2 vear 5 years 2% rate Total Assets Liabilities & Equity Short-term Deposits.% rate Certificates of eposit 2% rate $500 million 400 million S900 million 1 year 2 vear Total Liabilities Equity Total Liab Equity 1000...
Question 2: Bank AAA has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25 million of fixed-rate liabilities, $20 million of rate- sensitive liabilities, 5 million of demand deposit, 10 million of securities, and 0.6 million of reserves. Assume that the required reserve is 10%. a. Reflect the above information in a T account. How much is the Net worth? b. Calculate the required reserve and the excess reserve if any, c. Conduct income gap analysis for the...
Suppose you are the manager of a bank whose $100 billion of assets have an average duration of four years and whose $90 billion of liabilities have an average duration of six years. Conduct a duration analysis for the bank, and show what will happen to the net worth of the bank if interest rates rise by 2 percentage points. What actions could you take to reduce the bank's interest-rate risk?
20. A bank has the following balance sheet: Assets Rate sensitive $225,000 Fixed rate 550.000 Nonearning 120,000 $895,000 Avg. Rate 6.35% 7.55 Liabilities/Equity Rate sensitive $300,000 Fixed rate 505,000 Nonpaying 90,000 Total $895,000 Avg. Rate 4.25% 6.15 Total Suppose interest rates rise such that the average yield on rate-sensitive assets increases by 45 basis points and the average yield on rate-sensitive liabilities increases by 35 basis points. a. Calculate the bank's repricing GAP. b. Assuming the bank does not change...
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...
please solve question 4 and 5
4. A bank has the following balance sheet: Assets Rate sensitive Fixed rate Nonearning Total Avg. Rate 7.75% 8.75 Avg Rate 6.25% 7.50 $550,000 955,000 565,000 $2,070,000 Liabilities/Equity Rate sensitive $375,000 Fixed rate 805,000 Nonpaying 890,000 Total $2,070,000 ise such that the average yield on rate-sensitive assets increases by 45 basis points and the average yield on rate-sensitive liabilities increases by 35 basis points. a) Calculate the bank's repricing GAP, gap to total assets...
(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...
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.
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,...
4. The managers of Bay View Bank asks for a performance/risk analysis, and asks you to answer the following questions. The Bay View Bank's balance sheet is as follows: Assets: Securities Long-term Loans 5% rate $200 million S 800 million $1000 million Ave. Duration 2 vear 5 years 2% rate Total Assets Liabilities & Equity Short-term Deposits.% rate Certificates of eposit 2% rate $500 million 400 million S900 million 1 year 2 vear Total Liabilities Equity Total Liab Equity 1000...
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