Review for Final_ans_Fall11_L - FINANCIAL INSTITUTIONS...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
FINANCIAL INSTITUTIONS MANAGEMENT REVIEW FOR EXAM 3. Problem 1. (Cost of funds) A deposit account requires a minimum balance of $800 for interest to be earned at an annual rate of 3.6 percent. An account holder has maintained an average balance of $1100 for the first 3 months and $800 for the remaining 9 months. He writes an average of 70 checks per month and pays $0.03 per check. Cost of clearing a check for the bank $0.045. The account servicing fee is 6$ per month and account maintenance costs are 50$ per year. The minimum reserve requirements are 8%, float is 5%. What average return does the account holder earn on the account? Solution: Return = 2.88% Problem 2. (Foreign exchange risk and Hedging) . A Bank has been borrowing in the U.S. markets and lending abroad, thus incurring foreign exchange risk. In a recent transaction, it issued a one-year $10 million CD at 3% and funded a loan in Swiss Francs at 6 %. The spot rate for the Swiss Franc was SF 1.45/$ at the time of the transaction.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Review for Final_ans_Fall11_L - FINANCIAL INSTITUTIONS...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online