Questions 4-9 refer to the following balance sheet of a hypothetical private bank called Bank A. You are asked to show what the balance sheet for Bank A would look like after Bank A sells all of its loans to Bank B. You should assume that Bank B thinks the loans are only worth 80, so that Bank A sells its loans at a loss of 20. You should assume that Bank B pays for the loans it buys from A by instructing the Fed to transfer 80 in deposits that Bank B had with the Fed into the deposits that Bank A has with the Fed. Bank A assets Bank A liabilities Loans 100 Deposits 100 Investments 150 Debt 150 Cash and reserves 50 Equity (net worth) 50

Questions 4-9 refer to the following balance sheet of a hypothetical private bank called Bank A. You are asked to show what the balance sheet for Bank A would look like after Bank A sells all of its loans to Bank B. You should assume that Bank B thinks the loans are only worth 80, so that Bank A sells its loans at a loss of 20. You should assume that Bank B pays for the loans it buys from A by instructing the Fed to transfer 80 in deposits that Bank B had with the Fed into the deposits that Bank A has with the Fed. Bank A assets Bank A liabilities Loans 100 Deposits 100 Investments 150 Debt 150 Cash and reserves 50 Equity (net worth) 50

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter5: Time Value Of Money

Section: Chapter Questions

Problem 27P: EFFECTIVE VERSUS NOMINAL INTEREST RATES Bank A pays 4% interest compounded annually on deposits,...

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Researching GAAP Situation Hamilton Company operates in an industry with numerous competitors. It is experiencing a shortage of cash and decides to obtain money from a large bank by using some of its receivables as collateral. Hamilton pledges 5100,000 of its receivables, is charged a 12% fee on this amount, and notifies these credit customers to make their payments directly to the bank. Hamilton transfers the receivables to the bank, and the bank assumes the servicing activities, but Hamilton is responsible for all bad debts which it reasonably estimates to be 2% of the receivables amount. When the balance of the receivables pledged is reduced to 3,000, Hamilton is required to repurchase the receivables, notify the remaining credit customers to make payments to it, and reassume the servicing activities. The bank has the right to sell the receivables, except to Hamiltons major competitor. Hamiltons president has asked you how to account for (and record) this transaction. Directions Research the related generally accepted accounting principles and prepare a short memo to the president that answers his question. Cite your reference and applicable paragraph numbers.
Question 1 Please use an example to explain the process that the banking system uses to create money. Assume in your example that Bank 1 receives $1,200 from Firm A and sets up a checking account (demand deposits) for Firm A. Three firms, i.e., Firm A, Firm B, and Firm C, will be included in the process. Also assume that Bank 1, Bank 2, and Bank 3 all hold 12% in reserves and lend out the remaining demand deposits to corporations to earn interests.
1. A company usually has an average balance in its bank account equal to $60,000. TheThe company makes a loan for $80,000 to pay it off over the long term. The interest rate on the loan is7%. The bank requires the company that, while the loan is in force, the company must havean average balance in your bank account of not less than $80,000. The requirement of this balancecompensation will result in the effective interest rate that the company will pay will be:a. 7%b. Less than 7%c. Greater than 7%d. cannot be determined
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Pls solve all questions Problem 3 There are two types of banks, A and B. Each bank has 20 loans. Each loan of type A bank generates $500 with probability 0.9 and $200 with probability 0.1, and these cash flows are independently distributed. Each loan of the type B bank generates $600 with probability 0.4 and $200 with probability 0.6, and these cash flows are independently distributed, too. Suppose that the bank XYZ is type A. However, the investors believe that XYZ is type A with probability 0.3 and type B with probability 0.7. Ignore investors’ opportunity cost of investment (or assume that that the risk-free interest rate is 0%.) The investors are risk neutral. Consider the following securitization options for the bank XYZ. a. Suppose XYZ wants to securitize the portfolio of loans as a single security without communication. What is the market price of the security issued by XYZ? What is the net payoff to XYZ generated by this securitization? b. Suppose XYZ wants to securitize…
Use the following balance sheet to answer questions 5-8 ($000) Cash 21 Demand Deposits 550 Securities 369 Fed Funds (Borrowings) 151 Loans 400 Equity 89 5. If the bank’s expected net deposit drain is 4%, what is the bank’s expected liquidity needs? 6. How can the bank meet an expected net deposit drain of 4%? 7. ) If the bank decides to cut down on interest expenses by reducing its dependence upon borrowed funds, what policy must the bank follow? 8. ) If the bank experience a $50,000 sudden liquidity drain, what will be the impact on the bank’s balance sheet?
Use the following balance sheet to answer questions ($000) Cash 21 Demand Deposits 550 Securities 369 Fed Funds (Borrowings) 151 Loans 400 Equity 89 If the bank decides to cut down on interest expenses by reducing its dependence upon borrowed funds, what policy must the bank follow?
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2. Protecting Interest Income/Revenue• From the banker’s point of view, when the banker quotes a floating interest, in doingso, the banker is passing on the interest rate risk to the borrower.• What if the banker has to quote a fixed interest rate but his cost of funds are floating?In this case, the customer/borrower faces no risk but the banker does.• Example: As a Credit Officer bank you have agreed to provide a customer with a fixedrate, 3-month, RM 20 million loan 90 days from today. You had priced the loan at 12%annual interest rate.• The following quotes are available in the market.3-month KLIBOR = 9 %3-month KLIBOR futures = 90.0 (matures in 90 days) How would you protect yourself from a rise interest rates?
i need Question no 6 Solution Just please urgently 1) Suppose the central bank decides to lend $2million to a particular bank (Kangaroo Bank) on the condition that Kangaroo Bank must make an additional $2million loan to one of its customers. Show the effect this has on the balance sheets of the central bank and Kangaroo Bank. If the customer uses those funds to buy a house from a person who banks with Koala Bank, show the effects this will have on the balance sheets of Kangaroo and Koala Bank. Suppose that, as a result of increased use of electronic payments, banks no longer need to hold as much vault cash. Banks decide to reduce their vault cash holdings by $250million. Show the effects this would have on the balance sheets of commercial banks and the central bank. If, at the same time, depositors decide to reduce their cash holdings by $50million by depositing that amount with their banks, show the combined effect of these decisions on the balance sheets of commercial banks.…
7. The money creation processSuppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 25%. Brian, a client of First Main Street Bank, deposits $1,800,000 into his checking account at First Main Street Bank.Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans).AssetsLiabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%.Hint: If the change is negative, be sure to enter the value as negative number.Amount DepositedChange in Excess ReservesChange in Required Reserves(Dollars)(Dollars)(Dollars)1,800,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Alyssa, who immediately uses the funds to write a check to Tim. Tim deposits the funds immediately into his checking account at Second Republic Bank. Then Second…
QUESTION 1 : Protecting Interest Income/Revenue• From the banker’s point of view, when the banker quotes a floating interest, in doing so, the banker is passing on the interest rate risk to the borrower.• What if the banker has to quote a fixed interest rate but his cost of funds are floating?In this case, the customer/borrower faces no risk but the banker does.• Example: As a Credit Officer bank you have agreed to provide a customer with a fixedrate, 3-month, RM 20 million loan 90 days from today. You had priced the loan at 12%annual interest rate.• The following quotes are available in the market.3-month KLIBOR = 9 %3-month KLIBOR futures = 90.0 (matures in 90 days)How would you protect yourself from a rise interest rates?