Question B6. (15 marks) BIG Bank's balance sheet is listed below. Market yields and durations (in years) are in parenthesis, and amounts are in millions. Assets Cash Interbank lending (1.5%, 0.05) T-bonds (7.50%, 8) Liabilities and equity $20 Demand deposits $300 $200 Savings accounts (4.5%, 0.50) $200 $100 Interbank borrowings (1.5%, $200 0.01) Consumer loans (6%, 2.50) $400 Wholesale funding (5.5%, 0.25) $400 $400 Business loans (5.8%, 10) Variable-rate mortgages, repriced at quarter (6.3%, 0.25) $380 Equity $400 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 liability structure). (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 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)