Homework Answers
The correct option is A - decrease both bank profits and bank capital.
Changes in the interest rate effect banks capital by changing the value of bank's assets and liabilities.
Negative duration gap of a bank means that the bank asset have lower average duration than bank's liability. If the interest rate increase banks capital will fall as the liability will increase as they have higher duration, in case of negative duration gap, than bank's assets.
Banks profits will fall as well due to the positive gap. Positive gap means that bank's interest sensitive asset are more than bank's interest sensitive liability. And hence their profits fall.
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101) Since most banks have positive gaps and negative duration gaps, an increase in market interest...
PART A Answer ALL Questions on the Multiple Choice Answer Sheet worth 1 mark (To M...
PART A Answer ALL Questions on the Multiple Choice Answer Sheet worth 1 mark (To M 1. Which of the following statements about checking deposits is true? A. They are a liability for both households and banks. B. They are an asset for households but a liability for a bank. C. They are a liability for households but an asset for a bank. D. They are an asset for both households and banks 2. "A bank that expects interest rates...
In a rising market interest rate environment, bank management's most likely action will be to: a....
In a rising market interest rate environment, bank management's most likely action will be to: a. Decrease interest-sensitive assets. b. Increase interest-sensitive liabilities. c. Increase interest-sensitive assets. d. Have a higher negative relative IS gap. 2. A bank that is liability-sensitive will have: a. A positive impact on net interest income if interest rates fall. b. A negative impact on net interest income if interest rates rise. c. A positive impact on net interest income if interest rates rise. d....
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Central banks regularly use open market operations to influence short-term interest rates and market liquidity(money sup...
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1) Which of the following is the most likely explanation of Japan's very low market interest rates in the early 2000s? A) expected deflation B) an increasing budget deficit C) an increasing trade surplus D) an increase in corporate profits Answer: A Why lower interest rate cause deflation in this question? From Investopedia, 'In general, as interest rates are reduced, more people are able to borrow more money. The result is that consumers have more money to spend, causing the...
a) A portfolio manager wants to estimate the interest rate risk of a bond using duration. The current price of the bond is 98. A valuation model found that if interest rates decline by 35 basis points...
a) A portfolio manager wants to estimate the interest rate risk of a bond using duration. The current price of the bond is 98. A valuation model found that if interest rates decline by 35 basis points, the price will increase to 101 and if interest rates increase by 35 basis points, the price will decline to 96. What is the duration of this bond? b) A portfolio manager purchased a bond portfolio with a market value of $75 million....
Question 1- Please choose the correct answer inside the bracket and copy it to your answer...
Question 1- Please choose the correct answer inside the bracket and copy it to your answer sheets (12 Marks) a. Given a bank's return on assets, the higher the bank capital, the (higher/lower) the return for the owners of the bank b. Greater flexibility in liability management has allowed banks to (increase/decrease) the proportion of their assets held in loans. C. In the absence of regulation, banks would probably hold too little capital, (increasing/ decreasing) the return on equity. d....
13. If the Fed conducts Open Market Purchase, then: a. price of bonds increase, interest rates decrease and money supply...
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Q1) Two banks are being examined by regulators to determine the interest rate sensitivity of their...
Q1) Two banks are being examined by regulators to determine the interest rate sensitivity of their balance sheets. Bank A has assets composed solely of a 10-year $1 million loan with a coupon rate and yield of 12 percent. The loan is financed with a 10-year $1 million CD with a coupon rate and yield of 10 percent. Bank B has assets composed solely of a 7-year, 12 percent zero-coupon bond with a current (market) value of $894,006.20 $1,976,362.88. The...
PART A Answer ALL Questions on the Multiple Choice Answer Sheet worth 1 mark (To M 1. Which of the following statements about checking deposits is true? A. They are a liability for both households and banks. B. They are an asset for households but a liability for a bank. C. They are a liability for households but an asset for a bank. D. They are an asset for both households and banks 2. "A bank that expects interest rates...
In a rising market interest rate environment, bank management's most likely action will be to: a. Decrease interest-sensitive assets. b. Increase interest-sensitive liabilities. c. Increase interest-sensitive assets. d. Have a higher negative relative IS gap. 2. A bank that is liability-sensitive will have: a. A positive impact on net interest income if interest rates fall. b. A negative impact on net interest income if interest rates rise. c. A positive impact on net interest income if interest rates rise. d....
10. Open-market purchases of government bonds by the Fed will have the tendency to: A) Increase interest rates, the money supply, and national income. B) Increase interest rates and the money supply, but decrease national income. C) Increase interest rates, but decrease the money supply and national income. D) Decrease interest rates, but increase the money supply and national income. E) Decrease interest rates, the money supply, and national income. 11. Aggregate demand would tend to be shifted up by...
Question 1- Please choose the correct answer inside the bracket and copy it to your answer sheets (12 Marks) a. Given a bank's return on assets, the higher the bank capital, the (higher/lower) the return for the owners of the bank b. Greater flexibility in liability management has allowed banks to (increase/decrease) the proportion of their assets held in loans. C. In the absence of regulation, banks would probably hold too little capital, (increasing/ decreasing) the return on equity. d....
Q1) Two banks are being examined by regulators to determine the interest rate sensitivity of their balance sheets. Bank A has assets composed solely of a 10-year $1 million loan with a coupon rate and yield of 12 percent. The loan is financed with a 10-year $1 million CD with a coupon rate and yield of 10 percent. Bank B has assets composed solely of a 7-year, 12 percent zero-coupon bond with a current (market) value of $894,006.20 $1,976,362.88. The...
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