QL = 806451 . Interest Rate Risk Consider a commercial bank that attracts deposits at a variable interest rate ip and makes loans at a variable interest rate it. The supply of deposits and demand for loans are givens by DD- None Deposits: Qp = 90+20 x ip Qp = 90+70X.S4. Loans: Q = 80 - 6x il The units are: millions of dollars for quantities of funds Qp and QF, % for interest rates (so 1% translates toil in the equations). a) Initially, the rate on deposits is ip 0.5% and the rate on loans is it 5%. Calculate: 1. The bank's GAP value and 2. The bank's profits generated from these variable interest assets and liabilities. Qd2go.1 got 9900 to thith that rate QL 279.7 1917-goil =-10.4 bulvaire , b) Suppose that the Federal Reserve cuts the federal funds rate by 1.5%. In response the bank lowers in from 0.5% to 0% and lowers it from 5% to 3%. Calculate under the new interest rates: 1. The bank's GAP value and 2. The bank's profits generated from these variable interest assets and liabilities. 20-90 Gap care = (19,82-90-10.118 PL 280-68.03 = 79.82 : e) Imagine that people become less "sensitive" to interest rates, so the supply of deposits and demand for loans are givens by Deposits: Qp = 90 + 10 x 10 Loans: Q = 80 -3 il Calculate the bank's profits under the old and new interest rates. d) Are banks more or less exposed to the interest rate risk when the sensitivity to interest rates in loanable funds market is lower? Explain your answer. QL = 806451 . Interest Rate Risk Consider a commercial bank that attracts deposits at a variable interest rate ip and makes loans at a variable interest rate it. The supply of deposits and demand for loans are givens by DD- None Deposits: Qp = 90+20 x ip Qp = 90+70X.S4. Loans: Q = 80 - 6x il The units are: millions of dollars for quantities of funds Qp and QF, % for interest rates (so 1% translates toil in the equations). a) Initially, the rate on deposits is ip 0.5% and the rate on loans is it 5%. Calculate: 1. The bank's GAP value and 2. The bank's profits generated from these variable interest assets and liabilities. Qd2go.1 got 9900 to thith that rate QL 279.7 1917-goil =-10.4 bulvaire , b) Suppose that the Federal Reserve cuts the federal funds rate by 1.5%. In response the bank lowers in from 0.5% to 0% and lowers it from 5% to 3%. Calculate under the new interest rates: 1. The bank's GAP value and 2. The bank's profits generated from these variable interest assets and liabilities. 20-90 Gap care = (19,82-90-10.118 PL 280-68.03 = 79.82 : e) Imagine that people become less "sensitive" to interest rates, so the supply of deposits and demand for loans are givens by Deposits: Qp = 90 + 10 x 10 Loans: Q = 80 -3 il Calculate the bank's profits under the old and new interest rates. d) Are banks more or less exposed to the interest rate risk when the sensitivity to interest rates in loanable funds market is lower? Explain your
