Question B6. (15 marks) BIG Bank's balance sheet is listed below. Market yields and durations (in years) are irn parenthesis, and amounts are in millions Liabilities and equity $300 $200 $200 Assets $20 Demand deposits $200 $100 Interbank borrowings (1.5%, Interbank lending (1.5%, 0.05) T-bonds (7.50%, 8) Consumer loans (6%, 2.50) Business loans (5.8%, 10) Savings accounts (4.5%, 0.50) 0.01) 0.25) $400 | Wholesale funding (5.5%, $400 $380 Equity $400 $400 Variable-rate mortgages, repriced at quarter (6.3%, 0.25) Due to turbulence in overseas markets, the cost of wholesale funding has increased to 6%. The RBA reacts by reducing the target cash rate to 1%. a) Briefly explain if BIG Bank's cost of funding will increase or decrease (given the current (4 marks) b) Suggest two likely changes that BIG Bank will implement on its liability side. (3 marks) c) Estimate a minimum and maximum value of the new variable mortgage rate that BIG liability structure) Bank is likely to charge its customers. Explain your answer. (4 marks) d) Some financial reporters argue that BIG Bank is too greedy and should always pass on the interest changes decided by the RBA. Comment (4 marks) Question B6. (15 marks) BIG Bank's balance sheet is listed below. Market yields and durations (in years) are irn parenthesis, and amounts are in millions Liabilities and equity $300 $200 $200 Assets $20 Demand deposits $200 $100 Interbank borrowings (1.5%, Interbank lending (1.5%, 0.05) T-bonds (7.50%, 8) Consumer loans (6%, 2.50) Business loans (5.8%, 10) Savings accounts (4.5%, 0.50) 0.01) 0.25) $400 | Wholesale funding (5.5%, $400 $380 Equity $400 $400 Variable-rate mortgages, repriced at quarter (6.3%, 0.25) Due to turbulence in overseas markets, the cost of wholesale funding has increased to 6%. The RBA reacts by reducing the target cash rate to 1%. a) Briefly explain if BIG Bank's cost of funding will increase or decrease (given the current (4 marks) b) Suggest two likely changes that BIG Bank will implement on its liability side. (3 marks) c) Estimate a minimum and maximum value of the new variable mortgage rate that BIG liability structure) Bank is likely to charge its customers. Explain your answer. (4 marks) d) Some financial reporters argue that BIG Bank is too greedy and should always pass on the interest changes decided by the RBA. Comment (4 marks)