1.Giventhatthe'Rate'and'Volume'ofassetsandliabilitiesaffectbanknetinterestincome, analyse how these two components would impact banks during the COVID-19 environment.

2.

3.Suppose that your bank buys a T-bill yielding 4 percent that matures in six months and finances the purchase with a three-month time deposit paying 3 percent. The purchase price of the T- bill is $5 million financed with a $5 million deposit.

Required:

i. Calculate the six-month GAP associated with this transaction. What does this GAP measure indicate about interest rate risk in this transaction?

ii. Calculate the three-month GAP associated with this transaction. Is this a better GAP measure of the bank's risk? Why or why not?

3. Your bank has 50percent of its loans priced off at LIBOR+0.5%, on average. The majority of the bank's liabilities are volatile liabilities.

Required:

Assume that LIBOR rises from 6 percent to 6.5 percent. Will management likely increase deposit rates by 0.50 percent immediately? Explain why or why not. What will be the impact on the bank's spread?

Assume that the prime rate immediately falls from 6 percent to 5.5 percent. Will management likely decrease deposit rates by 0.50 percent immediately? Explain why or why not. What will be the impact on the bank's spread?