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2) Consider a commercial bank that holds variable rate deposits worth $1,000 and vari- able rate loans for $800. The rates are 2% on deposits
2) Consider a commercial bank that holds variable rate deposits worth $1,000 and vari- able rate loans for $800. The rates are 2% on deposits and 4% on loans. i) What is the profit contribution of variable interest assets and liabilities of the bank? ii) Compute the profit contribution of variable interest assets and liabilities if both interest rates increase 1%. Compute the profit contribution if both interest rates decrease 1%. iii) Would the variability in profits described in (ii) be larger if only the rate on deposits changed and the rate on loans remained at 4%? iv) Would the variability in profits described in (ii) be larger if only the rate on loans changed and the rate on deposits remained at 2%
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