(a) An FI offers a $2500 minimum balance investment savings account paying 4% annual interest, and there are no service charges as long as the customer maintains the minimum balance. The customer maintains a balance of $5000, and averages 750 cheques per year. Each cheque has a processing cost to the FI of $0.15. What is the annual gross interest return on this account to the customer?

(b) What is the relevance of maturity of assets vis--vis liabilities in the management of an institution's liability vis--vis liquidity risks?

(c) A current deposit account requires a minimum balance of $500 if annual interest of 5% is to be earned monthly on its deposits. An account holder has maintained an average balance of $300 for the first nine months of the year and $800 for the last three months of the year. She has written an average of 20 cheques a month and is not charged for these services. However, it costs the bank $0.02 to process each cheque. The bank would like to limit the average return (both explicit and implicit) earned by the account holder to 5%

per year. How much should it charge for processing each check to this account holder assuming that it will pay annual interest of 5% and minimum balances of $200 are maintained? (2 marks)

(e) What are the withdrawal risks and costs associated with the following types of liabilities? (3 marks)

• Bank-issued bonds