a) Calculate the banks interest rate gap and gap ratio. Based on the numbers, what interest rate risk does the bank face?

b) Evaluate the banks liquidity, capital adequacy, asset quality based on the balance sheet. For any type of bank risk that appears to be higher than the industry, explain how the balance sheet could be restructured to reduce the risk.

6. A bank has the following asset and liability portfolios Assets Liabilities and Capital s industry Firm (in billion $0 Industry Firm (in billion 25 15% 3 4% Demand deposits Required reserves 10% NOW accounts Commercial loans 30 20% 17 20% Floating-rate MMDAs 20 11% CD Fixed-rate R50 31% 5 35% Total Short-term 10 20% 10% Consumer loans From 1 to 5 years Total Mortgages 10 5 30% Long-term bonds Floating-rate D5 Capital 10 7% Fixed-rate 110% Total Treasu securities 2 Short-term Long-term 15%. Total Long term Corporate securities 5%. High-rated 10 5% Medium-rated 10 10% Total Long-term municipal securities 30e rated Hi 20e Moderate-rated Total 7 5% Fixed assets Total Assets 100 100% Total liabilities and capital 100 100% 6. A bank has the following asset and liability portfolios Assets Liabilities and Capital s industry Firm (in billion $0 Industry Firm (in billion 25 15% 3 4% Demand deposits Required reserves 10% NOW accounts Commercial loans 30 20% 17 20% Floating-rate MMDAs 20 11% CD Fixed-rate R50 31% 5 35% Total Short-term 10 20% 10% Consumer loans From 1 to 5 years Total Mortgages 10 5 30% Long-term bonds Floating-rate D5 Capital 10 7% Fixed-rate 110% Total Treasu securities 2 Short-term Long-term 15%. Total Long term Corporate securities 5%. High-rated 10 5% Medium-rated 10 10% Total Long-term municipal securities 30e rated Hi 20e Moderate-rated Total 7 5% Fixed assets Total Assets 100 100% Total liabilities and capital 100 100%