QUESTIONS 1. Assume that the following banks have the same net amount of 2 million, but they are different due to the capital structure: BANKA Reserves Loans Total assets 120 900 1020 Deposits Bank Capital Total Liabilities and Equity 850 170 1020 BANK B Reserves Loans Total assets 120 900 1020 Deposits Bank Capital Total Liabilities and Equity 1000 20 1020 a. Which Bank is more attractive for shareholders? b. Which bank is riskier in case of loan depreciation at 20 million? Show your calculations to support your suggestions. 2. Could you define what is the yield curve? a. What are the three main theories that attempt to explain the yield curve? b. What does it mean an inverted yield curve? How does it compare to a normal yield curve? 3. Briefly explain what would happen and why: a. Suppose that price levels in Indonesia rise by 20% relative to price levels in the Eurozone countries and that the purchasing power parity theory holds. How would this affect the value of the Indonesian rupiah relative to the euro? b. If the British central bank prints money to reduce unemployment, what will happen to the value of the pound in the short run and the long run? C. Due to increasing wealth, what would happen to the value of the Singapore dollar if Singaporeans significantly increased their consumption of foreign goods and services as compared to locally produced goods and services