Q1. Considering the balance sheets of two banks, HC Bank and LC Bank, answer the following: a. Calculate the capital to total assets ratio of each bank. b. Which bank exhibits a more liquid asset structure? Explain. c. Over time, which bank likely will exhibit more variability in its deposits and reserves? d. Which bank would cause more concern to the banking regulatory authorities? HC (High Capital) Bank Assets (millions of dollars) Liabilities (millions of dollars) Cash assets 10 Demand deposits 80 Short-term securities 8 Savings deposits 15 Long-term bonds 25 Small time deposits 5 Loans 70 Capital accounts 10 Total assets 110 Total liabilities and capital accounts 110 Assets (millions of dollars) Cash assets Short-term securities Long-term bonds Loans Total assets LC (Low Capital) Bank Liabilities (millions of dollars) 20 Demand deposits 25 Savings deposits 25 Small time deposits Capital accounts 105 Total liabilities and capital accounts 30 20 50 5 105 35 Q2. Explain the difference between bank solvency and bank liquidity. Q3. From the point of view of an asset manager of a commercial bank, discuss the trade-offs among the objectives of safety, liquidity and profitability. Q4. What is meant by the term liability management? Discuss the instruments banks use in liability management. Q1. Considering the balance sheets of two banks, HC Bank and LC Bank, answer the following: a. Calculate the capital to total assets ratio of each bank. b. Which bank exhibits a more liquid asset structure? Explain. c. Over time, which bank likely will exhibit more variability in its deposits and reserves? d. Which bank would cause more concern to the banking regulatory authorities? HC (High Capital) Bank Assets (millions of dollars) Liabilities (millions of dollars) Cash assets 10 Demand deposits 80 Short-term securities 8 Savings deposits 15 Long-term bonds 25 Small time deposits 5 Loans 70 Capital accounts 10 Total assets 110 Total liabilities and capital accounts 110 Assets (millions of dollars) Cash assets Short-term securities Long-term bonds Loans Total assets LC (Low Capital) Bank Liabilities (millions of dollars) 20 Demand deposits 25 Savings deposits 25 Small time deposits Capital accounts 105 Total liabilities and capital accounts 30 20 50 5 105 35 Q2. Explain the difference between bank solvency and bank liquidity. Q3. From the point of view of an asset manager of a commercial bank, discuss the trade-offs among the objectives of safety, liquidity and profitability. Q4. What is meant by the term liability management? Discuss the instruments banks use in liability management
