As an intern with the Bank of Goodlow, Tennessee, you have observed that this bank makes two types of loans, agriculture loans and consumer loans, and offers two types of deposits, demand deposits and time deposits. You must determine if your bank is an asset management bank or a liability management bank by determining if the bank has more core deposits plus capital than demand for loans (asset management bank) or more demand for loans than core deposits plus capital (liability management bank). The bank will invest excess funds, if they exist, in treasury securities that yield an annual rate of 2.00 percent. Borrowed, money market acquired funds, if required, would be obtained from world money centers and the Eurodollar market at a cost of 2.15 percent. Your bank has $400 in capital. Demand/supply functions are:

Demand function for agriculture loans (L_A)

r_A = .13 - .00005L_A

L_CI=$___________

r_CI= ____________

Demand for function for consumer loans (L_C)

r_C = .09 - .00002L_C

Supply function for demand deposits (D_D)

r_D = -.04 + .000021875D_D

Supply function for time deposits (D_T)

r_T = -0.001 + .000005D_T

a. Using the economics of banking theory covered in class, identify how the balance sheet and income statement for Bank of Goodlow, Tennessee would appear assuming that interest rates and the supply and demand functions remain constant for the next year.

Bank of Goodlow, Tennessee

Statement of Financial Conditions (pro forma)

February 28, 2017

U.S. Treasury Securities $______ Demand Deposits $ ________

Agriculture Loans _______ Time Deposits ________

Consumer Loans _______ Capital 400

Total Assets _ Total Liab & NW $______

Bank of Goodlow, Tennessee

Income Statement (pro forma)

February 28, 2017 - February 27, 2018

Assume all rates and balances remain constant for the next year

Revenues

Interest on Treasury Securities _ ______*_____ = $ _________

Interest on Agriculture Loans __ ______*________= $ _________

Interest on Consumer Loans _ ______*________= $_________

Total Interest Revenue ____________________$__________

Interest Expense

Interest on Demand Deposits __________*_______ = -$________

Interest on Time Deposits __ __________*________= $_________

Total Interest Expense ________________________$_________

Net Interest Revenue ___________________ $__________