Question
Suppose a bank's assets and liabilities have been classified into assets and liabilities that are rate sensitive and those that are not. The data (in
- Suppose a bank's assets and liabilities have been classified into assets and liabilities that are rate sensitive and those that are not. The data (in millions of dollars) are as follows:
Assets
Liabilities
Rate Sensitive
Short-term securities
35
Rate Sensitive
Variable CDs
20
Variable mortgage
50
Short-term debt
25
Fixed Rate
Long-term securities
5
Fixed Rate
Long-term debt
50
Physical capital
10
Capital (equities)
5
Total
100
Total
100
a) Calculate the effect of a decline of interest rates by 3% on bank income. Clearly indicate the direction (sign) of the change and the unit of measurement.
b) Calculate the effect of a decline of interest rates by 3% on interest margin. Clearly indicate the direction (sign) of the change and the unit of measurement.
c) Supposed the bank management is trying to change the sizes of their assets and liabilities such that the rate change (re decline of interest rates by 3%) produces an interest income of $1.35 million. Fill in the balance sheet to achieve such profit.
Assets
Liabilities
Rate Sensitive
Short-term securities
Rate Sensitive
Variable CDs
Variable mortgage
Short-term debt
Fixed Rate
Long-term securities
Fixed Rate
Long-term debt
Physical capital
Capital (equities)
Total
Total
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