Please answer the following homework questions, show all workings

1. How do monetary policy actions by the Federal Reserve impact interest rates?

2. Consider the following balance sheet positions for a financial institution:

Rate-sensitive assets = $200 million. Rate-sensitive liabilities = $100 million

Rate-sensitive assets = $100 million. Rate-sensitive liabilities = $150 million

Rate-sensitive assets = $150 million. Rate-sensitive liabilities = $140 million

3. Calculate the repricing gap and the impact on net interest income of a 1 percent increase in interest rates for each position.

4. Calculate the impact on net interest income on each of the above situations assuming a 1 percent decrease in interest rates.

5. What conclusion can you draw about the repricing model from these results?

6. Why are rates on credit card loans generally higher than rates on car loans?

7. What risks are incurred in making loans to borrowers based in foreign countries? Explain

8. What motivates FIs to hedge foreign currency exposures? What are the limitations to hedging foreign currency exposures?

9. How do the asset and liability structures of a savings institution compare with the asset and liability structures of a commercial bank? How do these structural differences affect the risks and operating performance of a savings institution?

10. What types of activities are normally classified as off-balance-sheet (OBS) activities?

a. How does an OBS activity move onto the balance sheet as an asset or liability?

b. What are the benefits of OBS activities to a bank?

c. What are the risks of OBS activities to a bank?

11. Identify the disparities between operational risk and technology risk. Do you think that operational risk will increase if payment systems are internationalized among banks? Why or why not?