Suppose Bank A has $35 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million in rate sensitive liabilities, and $35 million in fixed rate liabilities and equity capital. If you had believed that rates were going to rise by 2 percentage points (before it actually happened), explain how (if at all) you could have altered Bank A’s balance sheet and changed its interest rate risk exposure to improve its subsequent profit performance.

Suppose Bank A has $35 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million in rate sensitive liabilities, and $35 million in fixed rate liabilities and equity capital. If you had believed that rates were going to rise by 2 percentage points (before it actually happened), explain how (if at all) you could have altered Bank A’s balance sheet and changed its interest rate risk exposure to improve its subsequent profit performance.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 7P

See similar textbooks

Similar questions

You are the manager of a bank that has $15 million in fixed-rate assets, $30 million in rate-sensitive assets, $25 million in fixed-rate liabilities, and $20 million in rate-sensitive liabilities. Conduct a gap analysis for the bank, and show what would happen to bank profits if interest rates rise by 5 percentage points. What could management do to reduce interest-rate risk?
Suppose that you are the manager of a bank that has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25 million of fixed-rate liabilities, and $20 million of rate-sensitive liabilities. Conduct a gap analysis LOADING... for the bank, and show what will happen to bank profits if interest rates rise by 5 percentage points. The change in bank profits is $nothing million.
Suppose Bank A has $35 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million in rate sensitive liabilities, and $35 million in fixed rate liabilities and equity capital. Calculate the change in Bank A’s profit as a result of an increase in market interest rates of 2 percentage points.
Suppose you are the manager of a bank that has$15 million of fixed-rate assets, $30 million of ratesensitive assets, $25 million of fixed-rate liabilities,and $20 million of rate-sensitive liabilities. Conduct agap analysis for the bank, and show what will happento bank profits if interest rates rise by 5 percentagepoints. What actions could you take to reduce thebank’s interest-rate risk?
Suppose Bank A has $35 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million in rate sensitive liabilities, and $35 million in fixed rate liabilities and equity capital. What is the value of Bank A’s GAP?
You manage a bank that has $500 million of fixed-rate assets, $600 million of rate-sensitive assets, $1000 million of fixed-rate liabilities, and $100 million of rate-sensitive liabilities. A. Do a gap analysis and show what will happen to bank profits if interest rates rise by 4%. Show your work. B. What happens to the bank’s profits if interest rates fall by 7%?
If a bank maintains $10 billion in assets with an ROA of 3%, what would happen to the ROE if the leverage ratio fell from 6% to 4% because of an increase in the use of borrowings?
You are analyzing how interest rates affect the equity value of a bank using a duration analysis. After examining the balance sheet of the bank, you noticed that the value of its total assets and liabilities are $400M and $360M, respectively. You also determined that the duration gap of the bank is equal to 4.0 years. Using a duration analysis, you would like to predict the response of the bank’s equity value (in percentage terms) to a 0.1 percent increase in the market interest rate. You decided to assume that a one percentage point change in the rate is approximately equal to a one percent change in the rate. Following this approach, determine the percentage response of the bank’s equity to this change in the market interest rate. Group of answer choices -0.4% -4.0% 0.4% -3.6% -0.1%
Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rates next year would lead to the bank's return on equity being reduced to zero. Assume that the bank is subject to a tax rate of 30%.
Suppose SBD Bank has RSA of $150m and RSL of $140m. If interest rates rise by 1 percent on both RSAs and RSLs, what would be the expected annual change in net interest income (ΔNII) based on $GAP? Show your work. ( How a commercial bank’s value would be affected by an increase in economic growth?
The total in rate sensitive assets for a financial institution is $120 million and the total in rate sensitive liabilities is $95 million. What is the cumulative pricing gap (CGAP) and what is the interest rate sensitivity gap ratio if total assets equals $195 million? What would the projected change to net income be if interest rates rose by 2% on both assets and liabilities? What would the projected change to net income be if interest rates declined by 2% on both assets and liabilities? What would the projected change to net income be if interest rates rose by 1.8% on assets and 1.5% on liabilities? What would the projected change to net income be if interest rates declined by 1.8% on assets and 1.5% on liabilities?
If a bank has a positive interest-sensitive gap, one of the possible management responses would be to: wait for the interest rates to rise or be shorten asset decrease interest-sensitive increase interest-sensitive The First National Bank of Trinidad reports a net interest margin of 5.83 percent. It has total interest revenues of $275 million and total interest expenses of $210 million. What will be the bank's earning assets total? $4,717 million $3,602 million $1,115 million $3,790 million The First National Bank of Trinidad reports a net interest margin of 5.83 percent. It has total interest revenues of $275 million and total interest expenses of $210 million. This bank has earnings assets of $1,115. Suppose this bank's interest revenues rise by 8 percent and its interest expenses and earnings assets rise by 10 percent what is this bank's new net interest margin? 83 percent 09 percent 59 percent 38 percent If Fifth National Bank's asset duration exceeds its…