Finance homework

QUESTION 1 When the Fed Funds rate increases the cost of credit to non-financial firms does not change since the Fed Funds rate is an inter-bank rate of interest. True False QUESTION 2 1. 1) Bank X finances long term interest paying real estate assets with long term liabilities. If short term interest rates begin to rise the earnings of the bank will: (Assume that all interest receipts are swept into money market securities.) Become highly uncertain Remain unchanged Increase Decrease QUESTION 3 A bank that has (A-) rated debt will be able to issue bonds with yields that are below the U.S. Treasury Yield Curve. True False QUESTION 4 According to the 2013 annual report of Wells Fargo & Co., managers of Wells Fargo must manage asset/liability risks which include interest rate, market, and liquidity and funding risks. True False QUESTION 5 All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations than are its assets, then ________ in interest rates will ________ bank profits. a decline; not affect an increase; reduce a decline; reduce an increase; increase QUESTION 6 As Lehman Brothers failed in the autumn of 2008 rates on 30 day P-1 rated commercial paper spiked to 18% per year. True False QUESTION 7 As Lehman Brothers failed in the autumn of 2008 rates on 30 day P-1 rated commercial paper spiked to 18% per year. True False QUESTION 8 Bank X has $10 billion dollars of thirty year mortgages as assets and $8 billion of FDIC insured deposits with an average maturity of 1 month. If the yield on thirty year mortgages increases by 150 basis points and the increase in deposit rates increase by 50 basis points the net worth of the bank will: Increase Remain the same Decrease First increase and then decrease QUESTION 9 First National Bank Assets Liabilities Ratesensitive $40 million $50 million Fixedrate $60 million $50 million If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measured using gap analysis) will decline by $0.5 million. decline by $1.5 million. decline by $2.5 million. increase by $2.0 million. Q U E S T I O N 10 If the yield curve shifts up in (interest rates along the curve all change by the same number of basis points) and the bank is funded with liabilities that have shorter maturities than its assets; the value of the bank will decline. True False Q U E S T I O N 11 In the figure above, a factor that could cause the demand for bonds to shift to the right is: a decrease in wealth. expectations of lower interest rates in the future. an increase in the riskiness of bonds relative to other assets. an increase in the expected rate of inflation