1.As a potential jumbo CD depositor, under what circumstances would you prefer:

a.A variable -rate CD over a fixed -rate CD?

b.A zero-coupon CD over a variable-rate CD?

2.Use the following information to estimate the marginal cost of issuing a $1 million CD paying 3.25% interest. It has a one-year maturity, and the following estimates apply relative to the balance obtained:

Acquisition costs=1/8 of 1%

FDIC insurance = 1/12 of 1%

Required reserve percentage = 0%

3.A corporate customer borrows $150,000 against the firm's credit line at a local bank. Indicate with a T-account how the transaction will affect the bank's deposit balances held at the Fed when the firm spends the proceeds.

4.Bank X had just completed the 2-week reserve maintenance period, during which it held a daily average of $238 million in reserve deposits with the Fed. The bank had a daily average reserve deficiency the previous maintenance period of $3.75 million., which was within the allowable limit.Bank X's daily average net transactions accounts for the base computation period along with balances for selected assets are listed below:

Daily Average (Millions of Dollars)

Net transactions accounts

$3,257

Demand deposits due from U.S. depository institutions

366

Cash items in process of collection

181

Vault cash holdings

19.3

Using the reserve percentages from Exhibit 11.3:

a.Calculate the bank's daily average required reserve holdings during the maintenance period.

b.Did bank X meet its reserve target?

c.If the bank had carried forward a daily reserve surplus of $2.1 million instead of a deficiency, would it have met its target?