Below is Dragon Bank's balance sheet (in billions): Duration Assets Reserves & Cash Variable Mortgages Commercial...

Transcribed Image Text:

Below is Dragon Bank's balance sheet (in billions): Duration Assets Reserves & Cash Variable Mortgages Commercial Loans. Consumer Loans ?? 0 $10 2.0 $10 3.0 $7 0.7 Liabilities Checking Deposit Certificate Deposits (CDs) Equity $20 ??? $2 Duration 0.8 1.0 From past experience, you know that 10% of Consumer Loans and 50% of Checking Deposit are rate-sensitive. If the manager wants a Duration Gap of +1.03 years, what amount (in billions) of Certificate Deposits should the bank have? (3 marks) Below is Dragon Bank's balance sheet (in billions): Duration Assets Reserves & Cash Variable Mortgages Commercial Loans. Consumer Loans ?? 0 $10 2.0 $10 3.0 $7 0.7 Liabilities Checking Deposit Certificate Deposits (CDs) Equity $20 ??? $2 Duration 0.8 1.0 From past experience, you know that 10% of Consumer Loans and 50% of Checking Deposit are rate-sensitive. If the manager wants a Duration Gap of +1.03 years, what amount (in billions) of Certificate Deposits should the bank have? (3 marks)

Answer rating: 100% (QA)

The duration gap is a measure of how sensitive a banks assets and liabilities are to changes in inte... View the full answer