Assume that the Bank has the following balance sheet:

ASSETS

Cash & Short-term Investments $1,000

Mortgage Receivable, 30-yr, 7% fixed rate $99,000

TOTAL ASSETS $100,000

LIABILITIES Deposit Accounts (savings accounts) 3% variable $90,000

EQUITY Capital of bank owners $10,000

TOTAL LIABILITIES & EQUITY $100,000

Which would adversely affect the bank the most: an increase or a decrease in interest rates? Explain.

List two actions WWCB could take to limit its interest-rate risk.

List two actions WWCB could take to limit its liquidity risk.

List two actions WWCB could take to limit the default (or credit) risk on its loans.