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Suppose Melvin's Bank can make a bet on derivatives that has a 60% chance of earning $50and a 40% chance of losing $75. 1. Assume
Suppose Melvin's Bank can make a bet on derivatives that has a 60% chance of earning $50and a 40% chance of losing $75. 1. Assume Melvin's Bank has $50 in capital. What are the possible costs and benefits of thibet for Melvin and the deposit insurance fund? ls Melvin likely to make the bet?2. How does your answer change if Melvin's Bank has $75 in capital? What if it has $0 incapital?3. Relate your answers to the two previous parts to a regulators decision to close a bank. liparticular, can you use this example to explain why SVB and, even more so, Signaturebank were closed
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