1. Question 4

   3.33 Points

   A financial institution has the following balance sheet structure:

   Assets Liabilities and equity

   Cash $5 000 Certificate of deposit $10 000

   Loan $10 000 Equity $5 000

   Total assets $15 000 Total liabilities and equity $15 000

   The loan has a one-year maturity and a fixed-rate coupon of 10 per cent. The certificate of deposit has a five-year maturity and a 7 per cent fixed rate of interest. The FI expects no additional asset growth.

   If market interest rates had increased 100 basis points by the end of year 1, would the market value of certificate of deposits ? And would the market value of equity be $5000?

   1. rise/lower than

   2. fall/higher than

   3. rise/equal to

   4. fall/lower than

   5. None of the is correct

3. Safety and soundness regulations include

   1. the provision of guaranty funds.

   2. requirements encouraging diversification of assets.

   3. requiring minimum levels of capital.

   4. monitoring and surveillance.

   5. All of the above are correct