Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. What is the total capital amount the FI needs to hold against these exposures? (Assume data obtained from 2020 FI records) Select one: A. $5.04 million B. $9.87 million C. $8.4 million D. $7.52 million

Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. What is the total capital amount the FI needs to hold against these exposures? (Assume data obtained from 2020 FI records) Select one: A. $5.04 million B. $9.87 million C. $8.4 million D. $7.52 million

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 24P

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Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. Assuming a required capital ratio of 8%, what is the capital amount the FI needs to hold against these exposures? ANSWER MUST BE 7.52 million
Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. 1). What is the total credit equivalent amount? 2). All counterparties have a credit rating of BBB. What is the capital amount of the FI needs to hold against these exposures assuming CAR of 10.5%?
A DI has the following assets in its portfolio: $20 million in cash reserves with the Fed, $20 million in T-bills, and $50 million in mortgage loans. If it needs to dispose of its assets at short notice, it will receive only 99 percent of the fair market value of the T-bills and 90 percent of the fair market value of its mortgage loans. If the DI waits one month to liquidate these assets, it would receive the full fair market value for each security. Calculate the one-month liquidity index using the previous information.
In 2020, XYZ Co. has an existing loan in the amount of $1.5 million with an annual interest rate of 9.5%. The company provides an internal company prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace XYZ’s existing loan agreement with a new one, starting 2021. Sadaf Remo Bank has offered to loan XYZ $1.5 million at a rate of 8.5% but would require XYZ to provide financial statements that have been reviewed by an audit firm. Amaranth Bank has offered to loan XYZ $1.5 million at a rate of 7.5% but would require XYZ to provide financial statements that have been audited by an audit firm. The controller of XYZ approached an audit firm, BRONX Partners, and was given an estimated cost of $12,000 to perform a review and $20,000 to perform an audit. The controller of XYZ approached another audit firm, Essen & Co. for an estimate. Essen & Co, has quoted $15,000 to perform a review, and $30,000 to perform an audit. XYZ…
In 2020, XYZ Co. has an existing loan in the amount of $1.5 million with an annual interest rate of 9.5%. The company provides an internal company prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace XYZ’s existing loan agreement with a new one, starting 2021. Sadaf Remo Bank has offered to loan XYZ $1.5 million at a rate of 8.5% but would require XYZ to provide financial statements that have been reviewed by an audit firm. Amaranth Bank has offered to loan XYZ $1.5 million at a rate of 7.5% but would require XYZ to provide financial statements that have been audited by an audit firm. The controller of XYZ approached an audit firm, BRONX Partners, and was given an estimated cost of $12,000 to perform a review and $20,000 to perform an audit. The controller of XYZ approached another audit firm, Essen & Co. for an estimate. Essen & Co, has quoted $15,000 to perform a review, and $30,000 to perform an audit. XYZ…
In 2020, XYZ Co. has an existing loan in the amount of $1.5 million with an annual interest rate of 9.5%. The company provides an internal company prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace XYZ’s existing loan agreement with a new one, starting 2021. Sadaf Remo Bank has offered to loan XYZ $1.5 million at a rate of 8.5% but would require XYZ to provide financial statements that have been reviewed by an audit firm. Amaranth Bank has offered to loan XYZ $1.5 million at a rate of 7.5% but would require XYZ to provide financial statements that have been audited by an audit firm. The controller of XYZ approached an audit firm, BRONX Partners, and was given an estimated cost of $12,000 to perform a review and $20,000 to perform an audit. The controller of XYZ approached another audit firm, Essen & Co. for an estimate. Essen & Co, has quoted $15,000 to perform a review, and $30,000 to perform an audit. XYZ…
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Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $25,950,000, with the promise to buy them back at a price of $26,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturit
Suppose that the assets of a bank consist of $100 million of loans of BBB-rated corporations. The PD for the corporations is estimated as 1%. The average maturity is five years and the LGD is 60%. What is the total risk-weighted assets for credit risk under the Basel II advanced IRB approach? Question 5Answer a. $178.1 million b. $13.2 million c. $165.4 million d. $100 million
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