1. A bank offers one-year loans with a stated rate of 6.5 percent, charges a 1/2 percent loan origination fee, imposes a 10 percent compensating balance requirement, and has a 10 percent reserve requirement. What is the return to the bank on these loans? Show your calculation.

2. If a bank manager was certain interest rates were going to rise within the next six months, how could he or she take advantage by rebalancing rate-sensitive assets and rate-sensitive liabilities on the balance sheet?