10. Discuss the issue of asymmetric information that faced by an employer while hiring a new employee. What solutions can you propose to overcome asymmetric information problem? After the person recruited, does the issue persist (15 pts)? 14. Based on the information given below about banks A and B, calculate for each bank its return on assets (ROA), return on equity (ROE) and leverage ratio (20 pts) [Complete solution and calculations need to be shown to get the full points]. a. Bank A has net profit after taxes of $1.8 million and the balance sheet below: 11. In 2009 the world witnessed probably one of the biggest Ponzi schemes in history. Following the court decision, Bernard Madoff was sentenced to 150 years in jail. What problem do you think to be associated with asymmetric information was central to Madoff's success in cheating so many investors for so long (15 pts)? Bank A in millions) Assets Reserves Loans Securities $5 Deposits $45 Borrowing $45 Bank Capital Liabilities $75 $10 $10 12. As a well-known fact, the financial sector is one of the most heavily regulated sectors. Explain briefly how regulations (imposed by the government) help solve information problems, without impeding the effectiveness of financial markets and institutions (15 pts)? b. Bank B has net profit after taxes of $1 million and the balance sheet below: Bank B (in millions) Assets Liabilities Section-6 (Answer 1 question ONLY from this section) 13. Consider a bank with the following balance sheet. You read online that the bank's return on assets (ROA) was 1 percent. What were the bank's after-tax profits (20 pts) (Complete solution and calculations need to be shown to Reserves Loans Securities $8 Deposits $50 Borrowing $22 Bank Capital $80 $2 $8 Bank Balance Sheet in thousands) Assets Reserves Liabilities $2,000 $200 Deposits Loans $950 Borrowing $0 Securities $950 Bank Capital $100 10. Discuss the issue of asymmetric information that faced by an employer while hiring a new employee. What solutions can you propose to overcome asymmetric information problem? After the person recruited, does the issue persist (15 pts)? 14. Based on the information given below about banks A and B, calculate for each bank its return on assets (ROA), return on equity (ROE) and leverage ratio (20 pts) [Complete solution and calculations need to be shown to get the full points]. a. Bank A has net profit after taxes of $1.8 million and the balance sheet below: 11. In 2009 the world witnessed probably one of the biggest Ponzi schemes in history. Following the court decision, Bernard Madoff was sentenced to 150 years in jail. What problem do you think to be associated with asymmetric information was central to Madoff's success in cheating so many investors for so long (15 pts)? Bank A in millions) Assets Reserves Loans Securities $5 Deposits $45 Borrowing $45 Bank Capital Liabilities $75 $10 $10 12. As a well-known fact, the financial sector is one of the most heavily regulated sectors. Explain briefly how regulations (imposed by the government) help solve information problems, without impeding the effectiveness of financial markets and institutions (15 pts)? b. Bank B has net profit after taxes of $1 million and the balance sheet below: Bank B (in millions) Assets Liabilities Section-6 (Answer 1 question ONLY from this section) 13. Consider a bank with the following balance sheet. You read online that the bank's return on assets (ROA) was 1 percent. What were the bank's after-tax profits (20 pts) (Complete solution and calculations need to be shown to Reserves Loans Securities $8 Deposits $50 Borrowing $22 Bank Capital $80 $2 $8 Bank Balance Sheet in thousands) Assets Reserves Liabilities $2,000 $200 Deposits Loans $950 Borrowing $0 Securities $950 Bank Capital $100
