A bank with a two-year horizon has issued a one-year certificate of deposit for $50 million at an interest rate of 2 percent. With the proceeds, the bank has purchased a two-year Treasury note that pays 4 percent interest. What risk does the bank face in entering into these transactions? What would happen if all interest rates were to rise by 1 percent?
Answer to relevant QuestionsConsider the balance sheets of Bank A and Bank B. If reserve requirements were 10 percent of transaction deposits and both banks had equal access to the interbank market and funds from the Federal Reserve, which bank do you ...Duration analysis is an alternative to gap analysis for measuring interest-rate risk. The duration of an asset or liability measures how sensitive its market value is to a change in the interest rate: the more sensitive, the ...Commercial banks have become increasingly involved in real estate market. Plot the percent change from a year ago of real estate loans made by commercial banks (FRED code: REALLN) and discuss the relationship between the ...What was the main rationale behind the separation of commercial and investment banking activities in the Glass-Steagall Act of 1933? Why was the Act repealed?As an employee, would you prefer to participate in a defined-benefit pension plan or a defined-contribution pension plan? Explain your answer.
Post your question