1. Consider a bank with the following balance sheet items: 1./ rate-sensitive assets including variable-rate and short-term loans worth $15 million and short-term securities worth $30 million; 2./ rate-sensitive liabilities including variable-rate CDs worth $40 million and money market deposit accounts worth $40 million; 3./ fixed-rate liabilities worth $20 million; 4./ fixed-rate assets worth $75 million; and 5./ equity capital worth $20 million.
   1. Set up a balance sheet for this bank.
   2. Explain the concept of interest rate risk.
   3. Explain the two types of analysis to measure the interest rate risk.
   4. Use these analysis techniques to asses a 5 percentage point increase in the interest rate.

Answer rating: 100% (QA)

Answer Balance Sheet of the Bank Assets Amount Million Liabilities Amount Million Ratesensitive assets Ratesensitive liabilities Variablerate and shortterm loans 15 Variablerate CDs 40 Shortterm secur... View the full answer