assignment 6

# Assets liabilities 4 million reserves no changes 4

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from Second Bank. Assets Liabilities + \$4 million( reserves) No changes -\$4 million ( securities) No changes 4. Suppose that Third Bank has \$500 million in assets. Of these, \$200 million are rate- sensitive assets such as variable-rate and short-term loans. On the liabilities side, Third Bank has \$300 million in rate-sensitive liabilities such as variable-rate CDs and Money Market Deposit Accounts. a. What is the Gap for Third Bank? Gap= rate sensitive assets – rate sensitive assets= \$200 million- \$ 300 million= -\$ 100 million b. By how much would Third Bank's profits change if interest rates increase by 2%? ∆Π = i * Gap=0.2*(-100 million)= -2million in profit 5. Go to the following link to watch the South Park Episode "Margaritaville': After watching the episode, answer the following questions: a. What are the different views of the economic crisis presented in the show? The solution could be stimulate the purchase of the consumer, it will pull the economy out of the crisis. And low interest rate of Fed is one of the causes. The Wall street should be blames, Jews should be blamed and everybody should be blamed. b. What does Margaritaville represent? Mortgages and MBSs (If you are a sensitive Christian, Jew, or Muslim, please ignore the religious references.) 6. BOND SALE -- SERIES F

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Econ 350 Winter 2012 Assignment Six 2 For this bond sale, we will change the rules slightly. The market still consists of a one- year discount bond with a face value of \$12, similar to Series A – D. Series F bonds will be sold on January 19, and they will mature on January 20 when they pay \$12 each. The difference is that now, instead of everybody paying the same market price of the 100th bond in a Dutch auction, each buyer will now pay the price that she bid, until 100 bonds are sold. This is known as a silent auction. Please provide a bid price and the quantity you would like to purchase as part of the problem set. Remember that if your bid is successful, you will pay the price that you bid. You still have to be among the highest 100 bidders to receive bonds, but now instead of everyone paying the same, market-clearing price, we will pay different prices equal to the bid prices. 9 dollars for 6 shares. \$9*6=\$54
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• Spring '08
• Christianson
• Balance Sheet, Cheque, Deposit account

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