A commercial bank has $ 200 million of floating-rate loans yielding the T-bill rate plus 2 percent.
Question:
A commercial bank has $ 200 million of floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $ 200 million of fixed-rate deposits costing 9 percent. A savings bank has $ 200 million of mortgages with a fixed rate of 13 percent. They are financed with $ 200 million in CDs with a variable rate of T-bill rate plus 3 percent.
a. Discuss the type of interest rate risk each institution faces.
b. Propose a swap that would result in each institution having the same type of asset and liability cash flows.
c. Show that this swap would be acceptable to both parties.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 56% (16 reviews)
a The commercial bank is exposed to a decrease in rates that would lower interest income while the s...View the full answer
Answered By
Ashington Waweru
I am a lecturer, research writer and also a qualified financial analyst and accountant. I am qualified and articulate in many disciplines including English, Accounting, Finance, Quantitative spreadsheet analysis, Economics, and Statistics. I am an expert with sixteen years of experience in online industry-related work. I have a master's in business administration and a bachelor’s degree in education, accounting, and economics options.
I am a writer and proofreading expert with sixteen years of experience in online writing, proofreading, and text editing. I have vast knowledge and experience in writing techniques and styles such as APA, ASA, MLA, Chicago, Turabian, IEEE, and many others.
I am also an online blogger and research writer with sixteen years of writing and proofreading articles and reports. I have written many scripts and articles for blogs, and I also specialize in search engine
I have sixteen years of experience in Excel data entry, Excel data analysis, R-studio quantitative analysis, SPSS quantitative analysis, research writing, and proofreading articles and reports. I will deliver the highest quality online and offline Excel, R, SPSS, and other spreadsheet solutions within your operational deadlines. I have also compiled many original Excel quantitative and text spreadsheets which solve client’s problems in my research writing career.
I have extensive enterprise resource planning accounting, financial modeling, financial reporting, and company analysis: customer relationship management, enterprise resource planning, financial accounting projects, and corporate finance.
I am articulate in psychology, engineering, nursing, counseling, project management, accounting, finance, quantitative spreadsheet analysis, statistical and economic analysis, among many other industry fields and academic disciplines. I work to solve problems and provide accurate and credible solutions and research reports in all industries in the global economy.
I have taught and conducted masters and Ph.D. thesis research for specialists in Quantitative finance, Financial Accounting, Actuarial science, Macroeconomics, Microeconomics, Risk Management, Managerial Economics, Engineering Economics, Financial economics, Taxation and many other disciplines including water engineering, psychology, e-commerce, mechanical engineering, leadership and many others.
I have developed many courses on online websites like Teachable and Thinkific. I also developed an accounting reporting automation software project for Utafiti sacco located at ILRI Uthiru Kenya when I was working there in year 2001.
I am a mature, self-motivated worker who delivers high-quality, on-time reports which solve client’s problems accurately.
I have written many academic and professional industry research papers and tutored many clients from college to university undergraduate, master's and Ph.D. students, and corporate professionals. I anticipate your hiring me.
I know I will deliver the highest quality work you will find anywhere to award me your project work. Please note that I am looking for a long-term work relationship with you. I look forward to you delivering the best service to you.
3.00+
2+ Reviews
10+ Question Solved
Related Book For
Financial Markets and Institutions
ISBN: 978-0077861667
6th edition
Authors: Anthony Saunders, Marcia Cornett
Question Posted:
Students also viewed these Banking questions
-
A commercial bank has $200 million of four-year maturity floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of four-year maturity fixed-rate...
-
A commercial bank has $150 million in assets at book value. The insured and uninsured deposits are valued at $75 million and $50 million, respectively, and the book value of equity is $25 million. As...
-
A commercial bank has the following components in its capital account: Common stock ........... $110 10-year subordinated debt ....... $ 25 Undivided profits .......... 160 Loan-loss reserves...
-
Valuing Preferred Stock Best Rate Bank just issued some new preferred stock. The issue will pay a $10 annual dividend in perpetuity, beginning 10 years from now. If the market requires a 7 percent...
-
Suppose x has a distribution with = 72 and = 8.
-
A curve is given as y = x 1/x 2. a. Write this in the form y = A + x - 2 b. State the equations of the asymptotes. c. Sketch the curve, showing points of intersection with the coordinate axes.
-
Determine the shearing stress for an incompressible Newtonian fluid with a velocity distribution of \(\mathbf{V}=\left(3 x y^{2}-4 x^{3} ight) \mathbf{i}+\) \(\left(12 x^{2} y-y^{3} ight)...
-
Fresh Wholesale buys peaches from farmers and sells them to canneries. During May 2012, Fresh's inventory records showed the following: Fresh Wholesale uses the periodic inventory method to account...
-
A sample of 0.20 moles of diatomic perfect gas at 320 K undergoes an isothermal expansion from 2 to 8 . Make a P V diagram with the appropriate units. Calculate the work done by the gas during the...
-
The position of a particle as a function of time is given by r(vector) = (5.0i + 4.0j)t 2 m, where t is in seconds. a. What is the particles distance from the origin at t = 0, 2, and 5 s? b. Find an...
-
An insurance company owns $ 50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $ 50 million of fixed-rate guaranteed investment contracts (GICs) costing 10...
-
Consider the following two financial institutions: Money Center Bank: Managers of the money center bank are concerned that interest rates may fall over the next four years, while managers of the...
-
Buckeye Industries has a bond issue with a face value of $1,000 that is coming due in one year. The value of the companys assets is currently $1,040. Urban Meyer, the CEO, believes that the assets in...
-
Using real-world examples, discuss the consequences of an appreciation of a country's currency on the current account balance, inflation and economic growth.
-
Using real-world examples, evaluate the effectiveness of supply-side policies in reducing unemployment.
-
Using real-world examples, evaluate the effects of a tariff, or an international subsidy, or a quota on a specific market for the different stakeholders in an economy.
-
Using real-world examples, discuss the merits of free trade versus protectionism.
-
Using real-world examples, evaluate the view that a government's fiscal policy can be both a cause of inequality and a means of reducing inequality.
-
In the compound microscope shown in Fig. 39-3, the objective and eyepiece have focal lengths of +0.80 and +2.5 cm, respectively. The real intermediate image A'B' formed by the objective is 16 cm from...
-
Apply Jacobis method to the given system. Take the zero vector as the initial approximation and work with four-significant-digit accuracy until two successive iterates agree within 0.001 in each...
-
Unless far out-of-the-money or far in-the-money, for otherwise identical call options, the longer the term to expiration, the lower the price for a. American call options but not European call...
-
Explain why fiscal policy is not normally effective in stimulating the economy of a European country that is experiencing debt repayment problems.
-
Describe the conditions imposed by the European Central Bank (ECB) when it provides credit to European country governments with debt repayment problems.
-
Determine the direction of bond prices over the last year and explain the reason for it.
-
Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. Date Activities March 1 March 5 March 9 Beginning inventory Purchase...
-
Machine hours and electricity costs for Wells Industries for the most recent year are as follows: Month Machine Hours Electricity Costs January 2,000 $9,221 February 2,320 $10,500 March 1,520 $6,774...
-
What is the purpose of the Federal Reserve System, and how does it respond in recessionary times?What is the purpose of the Federal Reserve System, and how does it respond in recessionary times?
Study smarter with the SolutionInn App