A Bank has $100 million in capital, and $900 million of checkable deposit. The bank currently...

A Bank has $100 million in capital, and $900 million of checkable deposit. The bank currently maintains a total reserve of $100 million dollars, $200 million in T-bills, and rest in loans. A new corporate customer opens a checkable deposit account, and deposit $100 million.

1a. Please show the T-Account of the bank after the deposit?

1b. If the required reserve ratio is 10%, what is likely to happen?

1c. If the required rate for reserves increase to 11%, what should the bank do? How much can the bank lend out after the adjustment? Assume the bank want to maximize return.

1d. What is the equity multiplier?

1e. If the bank collects an average interest of 7.8% on their loan, and T-bill yield 1.44% return. What is the Return on Equity (ROE)? (Assume the profit margin is 8%)

1f. Suppose there is a reserve outflow of $ 20 million, and the reserve ratio is 11% for the bank. Assume the bank decides to borrow from the Fed to meet reserve requirement. How much they will borrow? Please also show the new the T-account.

1g. Suppose the bank is reconsidering to generate more profit. They want to restructure their assets. After the restructuring, they want have 10% second reserve, 40% residential mortgage, 30% corporate loans or securities, and 20% inter-bank loan to OECD banks. In addition, there is $600 million of off-balance activities for the bank. What is the risk-weighted capital ratio?

1h. Can this bank be classified as well capitalized bank?

1i. Suppose the T-bill yield 1.44%, the Libor is 1.83%, average residential mortgage rate is 5.5%, and average corporate loan is 7%. What is the new ROE? Assume the new structure yield a profit margin of 13%.

1j. Recently, 20% of checkable deposit is still in checking accounts. 40% of them becomes saving account, and 40% of them becomes CDs. If interest will increase by 2%, what is the financial result for the bank?

1k. If there is a terrible news hits the mortgage markets, and mortgage rate jump by 6%, which cause the value of the residential mortgage drop by 25%. What does the bank’s balance sheet look like? What will happen for this bank?

Solutions

Expert Solution

Answered First 4 Questions Please Give Thumbs up

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Assume that a bank has $12 million in reserves and checkable deposits of $10 million and...

Assume that a bank has $12 million in reserves and checkable deposits of $10 million and the required reserve ratio is 10%. The maximum amount of loans this bank can make is-

Suppose currently there is $600 Billion currency in circulation, the amount of checkable deposits is $900...

Suppose currently there is $600 Billion currency in circulation, the amount of checkable deposits is $900 Billion. Banks hold $105 Billion in in total reserves of which $15 Billion are excess reserves. a) Calculate the monetary base, money supply (M1), currency deposit ratio, excess reserve ratio, and the money multiplier b) Suppose the central bank conducts an unusually large open market operation purchase of $1,400 billion in bonds held by banks to counteract an economic contraction. Assume banks do not...

Suppose that currency in circulation is $100 billion, the amount of checkable deposits is $900 billion,...

Suppose that currency in circulation is $100 billion, the amount of checkable deposits is $900 billion, and excess reserves are $180 billion and the required reserve ratio is 10%. Calculate the money supply, monetary base, the currency deposit ratio, the excess reserve ratio, and the money multiplier M MB C/D ER/D m Suppose depositors lose confidence in the banking system and withdraw $800 billion. How will values found in question 1 change? M MB C/D ER/D m Suppose depositors regain...

uestion 44 Suppose that National Bank of Guerneville has ?$35 million in checkable? deposits, Commonwealth Bank...

uestion 44 Suppose that National Bank of Guerneville has ?$35 million in checkable? deposits, Commonwealth Bank has ?$42 million in checkable? deposits, and the required reserve ratio for checkable deposits is? 10%. If National Bank of Guerneville has? $4 million in reserves and Commonwealth has? $5 million in? reserves, how much in excess reserves does each bank? have? ?(Enter your answers rounded to one decimal? place.) Now suppose that a customer of National Bank of Guerneville writes a check for...

A commercial bank has checkable deposits of $880, loans of $842,reserves at $80 and capital...

A commercial bank has checkable deposits of $880, loans of $842, reserves at $80 and capital of $42. What is the maximum write down in the value of the bank's loans that will keep bank capital from falling below $20?Group of answer choices$22$25$34$75

A bank account currently has a balance of $7,400 dollars. If theinitial deposit was made...

A bank account currently has a balance of $7,400 dollars. If the initial deposit was made four years ago, and the interest rate is 5% APR compounded monthly, what was the initial deposit?(Round to the nearest cent and do not enter the dollar sign)

A bank currently has $70,000 in deposits, $6,000 in cash in the vault, $12,000 on deposit...

A bank currently has $70,000 in deposits, $6,000 in cash in the vault, $12,000 on deposit with the Fed, and $7,000 in government securities. The required reserve ratio is 20 percent. Answer these questions: 1) What is the maximum amount the money supply can increase, assuming this bank is the only bank in the system that has excess reserves? 2) An individual deposits a $750,000 check into the bank. That individual had just converted foreign currency into dollars so the...

A bank has issued a one- year certificate of deposit for $50 million at an interest...

A bank has issued a one- year certificate of deposit for $50 million at an interest rate of 2 percent. With the proceeds, the bank has purchased a two- year Treasury note that pays 4 percent interest. a) What is the Bank's asset? b) What is the Bank's liability? c) What risk does the bank face in entering into these transactions? d) What would happen if all interest rates were to rise by 1 percent? Will the bank earn or...

The Federal Reserve decides to sell $100 million in government debt to households paying with checkable...

The Federal Reserve decides to sell $100 million in government debt to households paying with checkable deposits. The current reserve requirement is 20%. Instructions: Enter your answer as a whole number. a. The Fed's decision will lead to (Click to select) more fewer the same reserves in the banking system and (Click to select) the same fewer more checkable deposits. b. The money supply will (Click to select) decrease increase remain the same by a maximum of $ million.

1. Ogier Incorporated currently has $900 million in sales, which are projected to grow by 8%...

1. Ogier Incorporated currently has $900 million in sales, which are projected to grow by 8% in Year 1 and by 4% in Year 2. Its operating profitability (OP) is 7%, and its capital requirement (CR) is 65%. Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to two decimal places. What are the projected sales in Years 1 and 2 (in...

Subjects