assignment3b - To: Eric Brockett, BankZero Regional Manager...

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To: Eric Brockett, BankZero Regional Manager From: Jonathan Abramson, Assistant Manager Subject: New deposit Instructions For this assignment you will write a 500- to 700-word report  explain how the new deposit will affect the bank's balance sheet and reserve requirements  identify the maximum amount of the deposit that can be used to acquire new assets briefly describe, for each potential use of the funds, how the transaction would affect the  bank's balance sheet and discuss how each option would affect the various risks faced by the  bank (e.g., leverage risk, credit risk, interest rate risk, trading risk, and liquidity risk) describe the importance of asymmetric information in evaluating each of the options recommend an option or combination of options that the bank should pursue with the new  funds It is great to hear that our bank is growing. With this corporate client deposit, it greatly enhances the bank’s reserves. While it will increase the assets on our balance sheet by increasing cash reserves by $300,000, it will also increase the bank’s liabilities by the same amount as checkable deposits. In total in will increase out assets and liabilities to $11 million each. Additionally, with our need to keep 10% as reserve, we will increase the bank’s ability to loan out or purchase additional securities in the amount of an additional $270,000. The use of these funds while profitable for the bank does have several risks that need to be
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assignment3b - To: Eric Brockett, BankZero Regional Manager...

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