Question
4. The following is a balance sheet of ConnBank. Based on this information, answer the following questions. Reserves Securities Loans Assets Liability $15 mil
4. The following is a balance sheet of ConnBank. Based on this information, answer the following questions. Reserves Securities Loans Assets Liability $15 mil Deposits $15 mil Borrowing $90 mil Capital $100 mil $10 mil $10 mil 1) Assuming that the required reserve ratio is 10%, show the required reserve and excess reserve in the bank's B/S. Explain the potential cost and benefit to the bank of holding excess reserve. 2) Because of unexpected withdrawal of $10mil, ConnBank now does not have enough cash to meet the reserve requirement. What are the options the bank has to meet the reserve requirement? List three options and pick one of the three options and describe the relevant changes in B/S. 3) Suppose all the ConnBank's loans are 30 year, 5% fixed interest rate mortgages. Show how the value of bank's asset would change when the market interest rate (not the mortgage loan interest rate) increases from 5% to 8%.
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