U82 Assignment

The Federal Reserve can be a shortterm source of funds. Discuss how a bank borrows from the Fed and why a bank would borrow from the Fed. Also discuss how the borrowing interest rate is established and include a description of what this rate (that is charged to banks) is called. Include a discussion about how to determine what that rate is today.

Summarize the most significant uses of the funds banks obtain; include a description of each and the risks involved. Next, discuss why a bank might invest in securities, even though loans typically generate a higher return; discuss risk as a factor. Finally, discuss how a bank might allocate funds to each type of asset and how this helps a bank to manage risk for the bank and its customers.

Describe what is meant by bank capital and discuss how banks determine the optimal amount of capital to hold. Since a banks capital is generally less than 10% of its assets, discuss how this compares to the average capital structure of manufacturing corporations and explain this difference.