a) Distinguish between credit risk, liquidity risk, market risk and interest rate risk as they affect the financial institutions. (60 marks) b) Consider the following balance sheet of Bank XYZ: Assets Variable-rate mortgages Fixed-rate mortgages Commercial loans Physical capital Total 300 Required i) ii) iii) iv) ($) 200 600 250 1350 Liabilities and Equity Money market deposits Savings deposits Variable Rate CDs Equity ($) 350 200 150 650 1350 Use the following hypothesis on the runoff of cash flows: 20% of the fixed-rate mortgages are interest rate sensitive and will be repaid during the year. 25% of the savings deposits are interest rate sensitive during the year. All commercial loans and money market deposits are interest rate sensitive. (10 marks) (10 marks) (10 marks) Calculate the Rate Sensitive Asset. Calculate the Rate Sensitive Liabilities. Calculate the income gap. Calculate the change in net interest income over the coming year if interest rates increase by 1% from 3% to 4%. (10 marks)