HW 7 Fall 2010

HW 7 Fall 2010 - Brigham Young University Institute of...

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Brigham Young University Institute of Business Management ManEc 453 Eric Schneck Money, Banking and Financial Markets 1) Answer the following questions (assume that the RR ratio is 10%): Treat questions 1) thru 7) as cumulative, each part builds on the answer to the previous part. Organize the above data into a Balance Sheet : ASSETS LIABILITIES Reserves: 10 Deposits (non-interest paying) 30 Short Term Securities 10 Fixed Rate large CD's 30 Fixed Rate Loans 50 Variable rate CD's 20 Long Term Securities 20 Borrowing 0 Variable Rate Loans 10 Paid-In Capital 15 Loan loss reserves 5 100 Annual after tax profits 2 2) What is the ROA for the bank? 2/100 2.00% What is the ROE for the bank? 2/ 20 10.00% Is the bank gap positive, neutral or negative? -10 negative 3) The Entrepreneurial Center withdraws 10 million to invest in Duct Tape wallets. What problem does that pose to our balance sheet? liquidity risk List 3 ways to fix the problem: Hold sufficient cash reserves to meet customers needs manage assets - sell securities or loans
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