answer the questions on excel

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all figures are in millions New policy dictates a 12% reserve ratio If you fail to meet this requirement you will be fined 1% o Assets Reserves Loans Liabilities 75 Deposits 525 Bank capital 500 total 600 500 a. have you met your minimum required reserve ? b. what is your bank capital value ? If your bank suffers a deposit outflow of $50 million with a required reserve ratio on deposits of 12%.. Fill in your bank balance sheet Required reserve ratio Depositor withdraws 50M Assets Liabilities Reserves Deposits Loans 525 Bank capital 12% total 525 525 525 Can you still manage to meet required reserve? how much is required to meet, what is the size of your short fall? Which option will you choose to correct the shortfall ? a. borrow from the fed at a rate of 1.25% b. selling $20 mil worth in loans to another bank c. borrow from the fed funds market at 0.75% d. buy $29 mil worth corporate bonds with coupon of 3%. Compare 2015 Balance Sheet for Bofa, GS and Citigroup all figures are in millions 2015 loans BofA p 25 GS p 69 Citigroup p 14 Which firm has largest deposits? Which firm has largest amount of loans outstanding? Which firm smallest amount of loans outstanding? Citigroup loans / deposits is greater than BofA loans/deposits ? Which bank has the largest debt securities / deposits ? S and Citigroup debt securities Deposits 293940 342995 BofA loans/deposits ? s / deposits ? 97519 loans deposits Debt sec deposits You can make two different investments. The interest you receive on the first investment is $250per year for three second investment in the third year and nothing in the first two years. If your interest rate (yield) is 1.15%, what sh investments? PV #1 1,0115 (1.0115)2 (1.0115)3 1,0115 (1.0115)2 (1.0115)3 PV #2 Compare the following a. 20 year bond selling for $800 with coupon of 4% b. a 1 year bond selling for $800 with a coupon of 1% 20 yr 1 yr price coupon par value n YTM current y Which $1,000 face value bond has higher yield to maturity ? Current yield is a better approximation for the 1 yr bond YTM than for the 20 year bond YTM? If interest rates are expected to increase which bond has more risk ? If the 1 year bond price drops to $500 its YTM > 20 yr priced at $800 YTM? These bonds are selling at , discount, premium or par? If interest rates decreased which bond would you prefer ? If the 20 year bond price increased to $2000, the YTM is positive, negative,zero? Do you think current yield can ever be negative ? If you buy the 20 year bond today for $800 and sell it next year for $1,200 what is the return? this return on the bond equals YTM? ment is $250per year for three years. You receive $800 on the t rate (yield) is 1.15%, what should you pay for each of these Find the Treasury yield curve rates for the following dates and maturities Date 1 Mo 10/30/2006 3 Mo 6 Mo 1 Yr 2 Yr Treasury YC link 3 Yr 5 Yr 7 Yr 5,15 5,1 5,16 5,03 4,78 4,68 4,64 4,64 2006 2007 2008 2009 2010 2011 2012 2013 5,15 0 0 0 0 0 0 0 5,1 0 0 0 0 0 0 0 5,16 0 0 0 0 0 0 0 5,03 0 0 0 0 0 0 0 4,78 0 0 0 0 0 0 0 4,68 0 0 0 0 0 0 0 4,64 0 0 0 0 0 0 0 4,64 0 0 0 0 0 0 0 4,68 0 0 0 0 0 0 0 4,88 0 0 0 0 0 0 0 4,78 0 0 0 0 0 0 0 10/30/2007 10/30/2008 10/30/2009 10/29/2010 10/31/2011 10/31/2012 10/30/2013 10/30/2014 10/30/2015 10/31/2016 Years 0,0833333 0,25 0,5 1 2 3 5 7 10 20 30 Rate Treasury YC link 10 Yr 20 Yr 30 Yr 4,68 4,88 4,78 2014 2015 2016 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Which years have inverted curves Which maturity has largest decline in rates from 2006 to 2016 2008 Financial crisis had largest impact on 30 year rates have decline every year since 2006 What year did 30 year rates finally begin to be greater than 20 year rates Tulipmania https://www.youtube.com/watch?v=nrUknL2P8zw South Sea Bubble https://www.youtube.com/watch?v=rfZ4OZNhAJ8 Econ 301 Money and Banking RP2 Banking Management 1. You have just landed an internship with a large multinational bank in the US. You have been tasked to analyze the statement of financial condition for the bank. New policy has dictated a 12% reserve ratio, if the bank fails to meet the requirement you will be fined 1% of deposits for each day of shortfall Using the data provided in excel template calculate a. have you met your minimum required reserve ? b. what is your bank capital value ? If your bank suffers a deposit outflow of $50 million with a required reserve ratio on deposits of 12%.. a. a. correct and complete your Bank balance sheet b. Can you still manage to meet required reserve? c. how much is required to meet, what is the size of your shortfall? Which option will you choose to correct the shortfall a. borrow from the fed at a rate of 1.25% b. selling $20 mil worth in loans to another bank c. borrow from the fed funds market at 0.75% d. buy $29 mil worth corporate bonds with coupon of 3%. 2. Your Associate also wants you to look at your competitors balance sheets to compare your financial condition. Using the Financial Statement links provided for Bank of America (BofA), Goldman Sachs (GS) and Citigroup a. Import the missing data on Loans, Debt Securities and Deposits b. Calculate the loans/deposit ratio c. Calculate the Debt securities/ deposit ratio 3. Using your analysis answer the questions on the questionnaire. Bonds and Yields 1. At the bank you are now tasked with analyzing which type of assets to invest into. You can make two different investments. a. The interest you receive on the first investment is $250 per year for three years. b. You receive $800 on the second investment in the third year and nothing in the first two years. If your interest rate (yield) is 1.15%, what should you pay for each of these investments? What are the present value of these two investments? 2. Compare the following bonds a. 20 year bond selling for $800 with coupon of 4% and face $1,000 b. 1 year bond selling for $800 with coupon of 1% and face $1,000 c. Solve for the YTM and Current yields 4. Using your analysis answer the questions on the questionnaire. Econ 301 Money and Banking Term Structure of Interest Rates: Yield Curves 1. Import the Treasury Rates for all maturities and for dates given in the excel template 2. Create 2 plots a. For 2006-2010 Yield Curves b. For 2011-2016 Yield Curves 3. Using your analysis answer the questions on the questionnaire. Extra Watch the links about Tulipmania and the South Sea bubble and answer the questions in the accompanying questionnaire. RP2
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Explanation & Answer

Attached.

figures in $ millions.
Assets
Reserves
Loans

Liabilities
75 Deposits
525 Bank capital

500
100

total

600

600

required reserve = m × demand deposits
reserve = 12% × 500million
reserve = 60 million.
bank capital = (reserve+loans-deposits)
bank capital = 75+525-500 = 100 million.

the bank has met the required reserve requirement.
excess reserve = reserve - required reserve
excess reserve = 75-60
excess reserve = 15million.

Assets
Reserves
Loans

Liabilities
54 Deposits
525 Bank capital

450
129

total

579

579

if the customers withdraw 50million worth od deposits, the deposit balance will be = 500-50=450 million.
reserve = m × demand dedosits
reserve = 12% × 450 million.
reserve = 54 million.
the bank can still amange to meet the required reserve of 60 million by adjusting its demand deposits.
the required amount to meet the required reserve = 60 million - 54 million
shortfail = 6million.
the size of the shortfail = deficit reserve/ m
size of the shortfail = 6million/ 0.12
size of the shortfail = 50million.

in sellecting the option to correct the shortfail, we select the option which gives rise to the least effect on the banks balance s
we begin by getting the bank's multiplier
required reserve = 60
bank's reserve = 54
m = 54/60
m = 0.9
multiplier = 1/m
multplier = 1/0.9= 1.11%
from these we will now get the option which is below 1.11%.
option 1; borrowing from the fed at a rate of 1.25% will have an increamental cost on the bank equivalent to = 1.25-1.11 = 0.
option 2; selling $20 million worth of loans will increase the demand depos...


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