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Consider a bank with the following balance sheet what is

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Reference no: EM13486031

Consider a bank with the following balance sheet:

Assets ($millions)

Liabilities ($millions)

Reserves

$35

Zero-interest checking

$50

Variable-rate loans

$170

3-month CDs

$100

Fixed-rate loans

$75

10-year CDs

$175

3-month Treasury

$50

Bank Capital

$____

10-year Treasury bonds

$25

a) What is the bank capital?

b) Find the bank's (basic) gap.

c) Suppose spot interest rates fell by 2 percentage points. What would happen to the bank's profits? (Assume that interest rates on variable-rate assets and liabilities change instantly.)

d) What actions could you take to reduce the bank's interest-rate risk?

Reference no: EM13486031

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