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Suppose that a bank does the following:
a. Sets a loan rate on a prospective loan with BR = 8.04% and ϕ = 4.15%.
b. Charges a 0.26 percent loan origination fee to the borrower.
c. Imposes a 14 percent compensating balance requirement to be held as noninterest-bearing demand deposits.
d. Holds reserve requirements of 9 percent imposed by the Federal Reserve on the bank’s demand deposits.
Calculate the bank’s ROA on this loan.
Note: Convert your answer to percentage format. Enter your answer rounded to 2 decimals, and without any units. So, for example, if your answer is 3.4568%, then just enter 3.46.
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- The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money from the Federal Reserve at a rate of 1.35%. Second, it could borrow money from other banks at a rate of 0.55%. What is the federal funds rate, and what is the discount rate? 1.35 federal funds rate: Incorrect I 1.55 discount rate: Incorrect What will happen to other short-term interest rates if the Fed increases its federal funds rate target? They will also increase. They will remain unchanged.. They will become irrelevant. They will decrease.Suppose that the current Federal Reserve federal funds rate is 3.0%. If the Fed were to raise it by .25%, it would bring the rate to 3.25%. Explain how the rate increase will impact the market for borrowed funds and the overall economy.suppose that you deposit 8000 in your bank and the required reserve ration is 15 percent the maximum loan your bank can make as a direct result of your deposit is
- The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money from the Federal Reserve at a rate of 0.75% . Second, it could borrow money from other banks at a rate of 0.55%. What is the federal funds rate, and what is the discount rate? federal funds rate: % discount rate: % What will happen to other short-term interest rates if the Fed increases its federal funds rate target? They will become irrelevant. They will decrease. They will remain unchanged. O They will also increase.Why is it that a decrease in the discount rate does notnormally lead to an increase in borrowed reserves?Use the supply and demand analysis of the market forreserves to explainThe Bank of Romovia, which is the highest financial institution in Romovia, has bought treasury bonds worth $2.2 billion from a private bank. How will this transaction affect the balance sheets of the private bank and the Bank of Romovia?
- Economics Consider the model of financial intermediation seen in Chapter 3. Money is denoted by M, currency by C and demand deposits by D. Currency in the economy is initially $4,000, so C = $4,000. Suppose households deposit all of their currency in “Firstbank”. 1. Suppose banks hold 100% of deposits as reserves. Then the money supply is 2. Suppose that banks hold only 30% of deposits as reserves, and lend 70% of deposits. Right after Firstbank lends some of the deposits to borrowers, and before borrowers deposit the money from the loans, the money supply in the economy isa) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent. Explain in details.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? Explain in details. c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not? Explain in details.Explain why a bank typically holds as reserves only a fraction of its deposit liabilities? In light of this arrangement, why is it important that depositors have confidence in their bank’s health?
- If lines of credit and other off-balance-sheet activities do not, by definition, appear on the bank’s balance sheet, how can they influence the level of liquidity risk to which the bank is exposed?Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Liabilities and Net Worth (Billions of Dollars) Total reserves 5 Checkable deposits 50 Loans 25 Securities 20 Total 50 Total 50 What is the required reserve ratio? 25% 40% 5% 10% Suppose that the Federal Reserve (the "Fed") buys $4 million of bonds from a bond dealer, who immediately deposits the funds in her checking account. What is the initial impact of this transaction? Checkable deposits rise by $4 million, and the banking system's holdings of securities rise by $4 million. The banking system's holdings of securities rise by $4 million, and the banking system's total reserves fall by $4 million. Checkable deposits rise by $4 million, and the banking system's total reserves rise by $4 million. The banking system's holdings of securities fall by $4 million,…Consider the following situation in the Canadian banking system: • The Bank of Canada purchases $3 million worth of government securities from an investment dealer with a cheque drawn on the Bank of Canada. • The dealer deposits this cheque at Bank XYZ, a commercial bank. The target reserve ratio for all banks is 30 percent. • All commercial banks operate with no excess reserves. .There is no cash drain. If Bank XYZ increases its loans to the maximum extent possible with its new excess reserves, the fourth-generation banks will be able to expand their loans by OA. $0.50 million. B. $0.72 million.. C. $0.58 million. D. $0.86 million. OE. $1.08 million. OOO
