Review for Final_ans_Fall11_L - FINANCIAL INSTITUTIONS...

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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.
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This note was uploaded on 12/04/2011 for the course FIN 3230 taught by Professor Olgapak during the Spring '11 term at Kazakhstan Institute of Management, Economics and Strategic Research.

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Review for Final_ans_Fall11_L - FINANCIAL INSTITUTIONS...

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