First Federal Bank (Millions)

Assets Liabilities

Cash and Deposits 5.00 Chequable Deposits 20.00

Invest Secs 20.00 Central Bank 1 Yr 20.00

Consumer Lns 20.00 Money Market 1 Yr 15.00

Consumer Lns 5.00

Commercial 5yrs 10.00 Greater than 2Yrs 10.00

Greater 2 years 15.00

Capital 35.00

Physical Capital 25.00

Total Assets 100.00 Total Liabilities 100.00

Invest Securities are all less than one year, Consumer Loans $20 million 1 year. Chequable Deposits include $10million under one year (Interest bearing).

NB 1) Rate Sensitive Assets and Liabilities are one year or less. The current Interest Rate is 10% per annum.

Using Gap Analysis

a) Reconstruct the balance sheet to reflect the changes noted above (4 Marks)

b) Calculate the income gap between Rate Sensitive Assets and Rate Sensitive Liabilities (4 Marks\)

b)If Interest rates increase by 2.0 % per annum overnight determine how much will net worth decrease/increase (6 Marks)