5 - rate of 2 percent With the proceeds the bank has...

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Unit 5 - Depository Institutions: Banks and Bank Management 5-1 Unit 5: Depository Institutions: Banks and Bank Management Conceptual Problem 1 Why are checking accounts not an important source of funds for commercial banks in the United States? Conceptual Problem 2 Banks hold more liquid assets than most businesses do. Explain why. Conceptual Problem 3 Explain how a bank uses liability management to respond to a deposit outflow. Why do banks prefer liability management to asset management? Conceptual Problem 4 A bank has issued a one-year certificate of deposit for $50 million at an interest
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Unformatted text preview: rate of 2 percent. With the proceeds, the bank has purchased a two-year Treasury note that pays 4 percent interest. What risk does the bank face in entering into these transactions? What would happen if all interest rates were to rise 1 percent? Analytical Problem 1 Bank Y and Bank Z both have assets of $1 billion. The return on assets for both banks is the same. Bank Y has liabilities of $800 million while Bank Z’s liabilities are $900 million. In which bank would you prefer to hold an equity stake? Explain your choice....
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