5. A US bank is subject to two restrictions: a required reserve ratio of 20% and...
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5. A US bank is subject to two restrictions: a required reserve ratio of 20% and the limit on the deposit rate of 6% per year. Suppose that a non-US branch of the bank does not have to put any reserves aside and can promise to pay a 7% deposit rate per year. Consider a one-year period. 1) If both US and non-US branches can lend money at 10% per year, how much more profit will a non-US branch make compared to a US branch on a $100 deposit? 2) What is the breakeven interest rate on the amount of money the US bank can lend out for one year, i.e., such rate the US bank can charge on a one-year loan so that the bank makes zero profit given the required reserve ratio and the limit on the deposit rate? 5. A US bank is subject to two restrictions: a required reserve ratio of 20% and the limit on the deposit rate of 6% per year. Suppose that a non-US branch of the bank does not have to put any reserves aside and can promise to pay a 7% deposit rate per year. Consider a one-year period. 1) If both US and non-US branches can lend money at 10% per year, how much more profit will a non-US branch make compared to a US branch on a $100 deposit? 2) What is the breakeven interest rate on the amount of money the US bank can lend out for one year, i.e., such rate the US bank can charge on a one-year loan so that the bank makes zero profit given the required reserve ratio and the limit on the deposit rate?
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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