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# MoneyandBanking

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FINA3313-Money and BankingStudent NameInstituteDate1. Rank the following bank assets from most to least liquid: a. Commercial loans 3 b. Securities 2c. Reserves 1d. Physical capital 42. New Bank started its first day of operations with \$155 million in capital. A total of \$92 million in checkable deposits is received. The bank makes a \$28 million commercial loan and lends another \$23 million in mortgage loans. If required reserves are 5.4%, what does the bank balance sheet look like?Assets                                                                 Liabilities Required Reserves \$ 5 million                                Checkable Deposits \$ 92 million Excess Reserves \$191 million                                  Bank Capital \$ 155 million Loans \$51 million3. The bank you own has the following balance sheet:                  Assets                                           Liabilities                  Reserves \$75 million                     Deposits \$500 million                  Loans \$525 million                       Bank capital \$100 million If the bank suffers a deposit outflow of \$50 million with a required reserve ratio on deposits of 10%, what actions should you take?In the case above the deposit of \$50 million outflow will results in the falling of reserves by \$50 million to \$25 million. The bank needs to acquire \$20 million of reserves since the required reserves are \$45 i.e. 0.1% of \$450 million of deposits. The reserves can be achieved through calling in issuing off \$20 million of loans, borrowing the \$20 million on a discount rate or borrowing the same amount from the other banks.4. Suppose you are the manager of a bank that has \$15 million of fixed-rate assets, \$30 million of rate-sensitive assets, \$25 million of fixed-rate liabilities, and \$20 million of rate-sensitive liabilities. Conduct a gap analysis for the bank, and show what will happen to bank profits if interest rates rise by 5 percentage points. What actions could you take to reduce the bank’s interest-rate risk?GAP = RSA – RSL Hence this will result to = + \$5 million. This shows that profits will increase by \$500,000 only if the interest rates will rise by 5%. Through this interest income will increase by \$1,500,000 and interest expense increases by \$1,000,000. \$1,500,000 – \$1,000,000 = +\$500,000.