Assignment 1 FIN352 Solved: No Plagiarism!

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Assignment 1 FIN 352 DUE 2/23/20 11:59 pm.

 

All assignments should be written in your own words and provide examples and opinions beyond the textbook or any other source you get them from as listed in the online assignment guidelines. I will be looking for more of your opinions and examples beyond textbook definitions. For calculations show ALL your steps including calculator/Excel keystrokes and/or formulas. If you use excel make sure to upload the original worksheet. It is important to explain and briefly discuss your final answers and NOT just provide a number answer only or textbook definitions or any other supplements. Plagiarism software will be used to compare to those and to each other. Please label your uploaded assignment file with the course and your name on the file to the Blackboard assignment link. It is important to show you work for partial credit.

NAME:___________________________________________________

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Chapter 1

Problem 1 (10%):

List and discuss three risks of financial institutions. Provide real examples and your OWN opinions.

———————————————————————————————————-

Problem 2 (10%):

List and discuss two financial intermediaries and what wealth transfer functions that they perform? Give examples.

————————————————————————————————————–

 Problem 3 (10%):

Complete Web Questions 40 and 41 on page 25 of the textbook. Discuss and provide your own   summary and in your own words. Note you can use any other financial website and note that this FED topic is currently in the news these days.

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Chapter 7

Problem 4 (10%):

Bank ABC  has liabilities of $4 million with an average maturity of two years paying interest rates of 4.0 percent annually. It has assets of $5 million with an average maturity of 5 years earning interest rates of 6.0 percent annually. What is the bank’s net interest income in dollars in year 3, after it refinances all of its liabilities at a rate of 6.0 percent? Show all work and discuss results.

———————————————————————————————————

Problem 5 (10%):

Bank XYZ has 10 million British pounds (£) in one-year assets and £8 million in one-year liabilities. In addition, it has one-year liabilities of 4 million euros (€). Assets are earning 8 percent and both liabilities are being paid at a rate of 8 percent. All interest and principal will be paid at the end of the year. If the year-end spot exchange rate for the British pound is $1.50/£ and the liabilities pay 8 percent, what is the maximum that the € can appreciate and the bank still maintain a zero profit? Show all your work and discuss your results

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Chapter 8

Problem 6 (10%): The balance sheet of XYZ Bank appears below. All figures in millions of  U.S. dollars.

Assets Liabilities  
1 Short-term consumer loans (one-year maturity) $150 1 Equity capital (fixed) $120
2 Long-term consumer loans 125 2 Demand deposits (two-year maturity) 40
3 Three-month Treasury bills 130 3 Passbook savings 130
4 Six-month Treasury notes 135 4 Three-month CDs 140
5 Three-year Treasury bond 170 5 Three-month bankers acceptances 120
6 10-year, fixed-rate mortgages 120 6 Six-month commercial paper 160
7 30-year, floating-rate mortgages (rate adjusted every nine months) 140 7 One-year time deposits 120
      8 Two-year time deposits 40
    $970     $970

 

  1. What is the one-year rate-sensitive assets?
  2. What is the one-year rate-sensitive liabilities?
  3. What is the cumulative one-year repricing gap (CGAP) for the bank?
    d. What is the gap ratio?
  4. Suppose that interest rates rise by 2 percent on both RSAs and RSLs. The expected annual change in net interest income of the bank is? Briefly discuss your results.
    ———————————————————————————————————-

 

 

 

 

 

 

 

Problem 7 (10%): The following information details the current rate sensitivity report for Global Bank, Inc. ($ million).

    Maturity Bucket  
    Overnight 1-30 days 31-91 days 92-181 days
Assets Fed Funds $20      
  Loans $0 $10 $15 $80
Liabilities          
  Fed Funds $50      
  Euro CDs $5 $25 $40 $0

 

  1. Calculate the funding gap for Global Bank using (a) a 30-day maturity period and (b) a 91-day maturity period.

 

  1. How will a decrease of 25 basis points in all interest rates affect Global Bank net interest income over a planning period of 91 days?
  2. What does Global Bank’s 91-day gap positions reveal about the bank management’s interest rate forecasts and the bank’s interest rate risk exposure?  Briefly discuss.
    ————————————————————————————————————

Problem 8 (10%):

American Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.

Assets Amount ($ millions) Annual Rate Liabilities Amount ($ millions) Annual Rate
1-year bonds $60 7% 1-year CD $50 5%
10-year loan $40 12% 2-year CD $40 6%
      Equity $10  
Total $100   Total $100  

 

  1. What is the weighted average maturity of assets?
  2. What is the weighted average maturity of liabilities?
  3. What is this FI’s maturity gap?
  4. What is market value of the two-year CD if all market interest rates increase by 2

percent?

  1. What is the impact on the FI’s equity of a 2 percent overall increase in market

interest rates on all fixed-rate instruments? Briefly discuss your results.

 

 

Problem 9 (10%):

If a manager of a bank or any other financial institutions was quite certain that interest rates were going to rise within the next six months, how should the bank manager adjust the bank’s six-month repricing gap to take advantage of this anticipated rise? What if the manger believed rates would fall in the next six months? Briefly discuss and provide an example.

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Chapter 9

Problem10 (10%):

U.S. Treasury quotes as follows: U.S. Treasury quotes from the WSJ on Oct. 15, 2003:

Rate Maturity Ask Change Ask yield
7.1250 Oct 15, 2005 102:08 -1 5.9156
  1. What is the duration of the above Treasury note? Use the asked price to calculate the duration. Recall that Treasuries pay interest semiannually.

 

  1. If yields increase by 10 basis points, what is the approximate price change on the $100,000 Treasury note? Use the duration approximation relationship. Briefly discuss.
    ===================================================================

Description

All assignments should be written in your own words and provide examples and opinions beyond the textbook or any other source you get them from as listed in the online assignment guidelines. I will be looking for more of your opinions and examples beyond textbook definitions. For calculations show ALL your steps including calculator/Excel keystrokes and/or formulas. If you use excel make sure to upload the original worksheet. It is important to explain and briefly discuss your final answers and NOT just provide a number answer only or textbook definitions or any other supplements. Plagiarism software will be used to compare to those and to each other. Please label your uploaded assignment file with the course and your name on the file to the Blackboard assignment link. It is important to show you work for partial credit.

NAME:___________________________________________________

—————————————————————————————————————

Chapter 1

Problem 1 (10%):

List and discuss three risks of financial institutions. Provide real examples and your OWN opinions.

———————————————————————————————————-

Problem 2 (10%):

List and discuss two financial intermediaries and what wealth transfer functions that they perform? Give examples.

————————————————————————————————————–

 Problem 3 (10%):

Complete Web Questions 40 and 41 on page 25 of the textbook. Discuss and provide your own   summary and in your own words. Note you can use any other financial website and note that this FED topic is currently in the news these days.

===================================================================

Chapter 7

Problem 4 (10%):

Bank ABC  has liabilities of $4 million with an average maturity of two years paying interest rates of 4.0 percent annually. It has assets of $5 million with an average maturity of 5 years earning interest rates of 6.0 percent annually. What is the bank’s net interest income in dollars in year 3, after it refinances all of its liabilities at a rate of 6.0 percent? Show all work and discuss results.

———————————————————————————————————

Problem 5 (10%):

Bank XYZ has 10 million British pounds (£) in one-year assets and £8 million in one-year liabilities. In addition, it has one-year liabilities of 4 million euros (€). Assets are earning 8 percent and both liabilities are being paid at a rate of 8 percent. All interest and principal will be paid at the end of the year. If the year-end spot exchange rate for the British pound is $1.50/£ and the liabilities pay 8 percent, what is the maximum that the € can appreciate and the bank still maintain a zero profit? Show all your work and discuss your results

==================================================================

 

 

 

 

Chapter 8

Problem 6 (10%): The balance sheet of XYZ Bank appears below. All figures in millions of  U.S. dollars.

Assets Liabilities  
1 Short-term consumer loans (one-year maturity) $150 1 Equity capital (fixed) $120
2 Long-term consumer loans 125 2 Demand deposits (two-year maturity) 40
3 Three-month Treasury bills 130 3 Passbook savings 130
4 Six-month Treasury notes 135 4 Three-month CDs 140
5 Three-year Treasury bond 170 5 Three-month bankers acceptances 120
6 10-year, fixed-rate mortgages 120 6 Six-month commercial paper 160
7 30-year, floating-rate mortgages (rate adjusted every nine months) 140 7 One-year time deposits 120
      8 Two-year time deposits 40
    $970     $970

 

  1. What is the one-year rate-sensitive assets?
  2. What is the one-year rate-sensitive liabilities?
  3. What is the cumulative one-year repricing gap (CGAP) for the bank?
    d. What is the gap ratio?
  4. Suppose that interest rates rise by 2 percent on both RSAs and RSLs. The expected annual change in net interest income of the bank is? Briefly discuss your results.
    ———————————————————————————————————-

 

 

 

 

 

 

 

Problem 7 (10%): The following information details the current rate sensitivity report for Global Bank, Inc. ($ million).

    Maturity Bucket  
    Overnight 1-30 days 31-91 days 92-181 days
Assets Fed Funds $20      
  Loans $0 $10 $15 $80
Liabilities          
  Fed Funds $50      
  Euro CDs $5 $25 $40 $0

 

  1. Calculate the funding gap for Global Bank using (a) a 30-day maturity period and (b) a 91-day maturity period.

 

  1. How will a decrease of 25 basis points in all interest rates affect Global Bank net interest income over a planning period of 91 days?
  2. What does Global Bank’s 91-day gap positions reveal about the bank management’s interest rate forecasts and the bank’s interest rate risk exposure?  Briefly discuss.
    ————————————————————————————————————

Problem 8 (10%):

American Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.

Assets Amount ($ millions) Annual Rate Liabilities Amount ($ millions) Annual Rate
1-year bonds $60 7% 1-year CD $50 5%
10-year loan $40 12% 2-year CD $40 6%
      Equity $10  
Total $100   Total $100  

 

  1. What is the weighted average maturity of assets?
  2. What is the weighted average maturity of liabilities?
  3. What is this FI’s maturity gap?
  4. What is market value of the two-year CD if all market interest rates increase by 2

percent?

  1. What is the impact on the FI’s equity of a 2 percent overall increase in market

interest rates on all fixed-rate instruments? Briefly discuss your results.

 

 

Problem 9 (10%):

If a manager of a bank or any other financial institutions was quite certain that interest rates were going to rise within the next six months, how should the bank manager adjust the bank’s six-month repricing gap to take advantage of this anticipated rise? What if the manger believed rates would fall in the next six months? Briefly discuss and provide an example.

================================================================

Chapter 9

Problem10 (10%):

U.S. Treasury quotes as follows: U.S. Treasury quotes from the WSJ on Oct. 15, 2003:

Rate Maturity Ask Change Ask yield
7.1250 Oct 15, 2005 102:08 -1 5.9156
  1. What is the duration of the above Treasury note? Use the asked price to calculate the duration. Recall that Treasuries pay interest semiannually.

 

  1. If yields increase by 10 basis points, what is the approximate price change on the $100,000 Treasury note? Use the duration approximation relationship. Briefly discuss.
    ===================================================================

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