User Account

All Pages

Maintain high levels of capital ratio

Assignment Help Business Economics
Reference no: EM133067582

Your bank is providing a $30,000,000 loan to an BBB- rated corporate client. Refer to the information below.

Bank's objective - ROE 22% before tax

Current Loan Interest rate: 8%

Average unused interest charge $ Nil

Application fee: $ Nil

Marginal cost of non-equity funds: 0.15%

Annual loan service fees: $100,000

Capital ratio: 9.5%

Average Demand deposits with bank $6,000,000

Interest paid on Demand deposits 0.3%

Average Term deposits $3,000,000

Interest rate on Term deposits 1.65%

Reserve requirements on deposits Demand deposit - 10%, Term deposit - 10%

Cost of providing services (by Loan Dept.) $85,000

Loan risk weighting 130%

a. What interest rate would you need to charge to exactly achieve the bank's objective (show working) ?

b. Using your new calculated interest rate, assume that the cost of non equity funds increases by 0.85% and APRA also increases the capital ratio to 12%. Re-calculate the resulting new loan interest rate

c. Explain why a global regulator prefer a bank maintain high levels of capital ratio. In your answer, describe how this decision has resulted in a different interest rate in part a. and b.

Reference no: EM133067582

Questions Cloud

Discuss the relevance of emergent strategy : Identify and discuss the relevance of emergent strategy in an organization such as Apple. This question should be answered in the form of an essay
Factors that will affect the supply of the products : Please indicate 2 factors that will affect the supply of the following products in the coming years. Do you think these factors will cause the supply to increas
Determining the equilibrium situation : Suppose marginal returns from capital are higher than the market ongoing interest rate. Explain why this is not an equilibrium situation if the capital market i
The various types of communications : What are the various types of communications that an entrepreneur uses, and what are their main purposes?
Maintain high levels of capital ratio : Explain why a global regulator prefer a bank maintain high levels of capital ratio. In your answer, describe how this decision has resulted in a different in
How much will the office equipment cost you : Your company is considering buying office equipment from England that costs 2,800 pounds. If the exchange rate is $1.92, meaning that 1 pound costs $1.92, how m
Motivation-planning of events : How can alumni be included in the motivation & planning of events?
Explain five different types of costs that are used : Identify and clearly explain 5 different types of costs that are used in managerial decision making
Key performance indicators : What would be some key performance indicators (KPIs) to determine if your project is successfully performing? And why is this important?

Reviews

Write a Review

Business Economics Questions & Answers

  What will be point also arc elasticity for the condition

If the market is made up of 100 individuals with demand curves identical to Mr. Smith's, Illustrate what will be the point also arc elasticity for the conditions specified in parts a also b

  By imposing trade restrictions on imports

By imposing trade restrictions on imports, the U.S. will eventually see an appreciation of the dollar that will reduce U.S. exports to other countries. and Why?

  Why are imports considered safety valve for the economy

A perfectly competitive seller is:  Why are imports considered a “safety valve” for the economy? What do labor unions, state occupational licensing agencies, the NCAA, the AMA, and college accreditation agencies have in common? What counter veiling m..

  Therefore has monopoly on the sale of fresh flowers

Juanita maintains the only greenhouse in isolated Point Barrow, Alaska, and therefore has a monopoly on the sale of fresh flowers. Her hired-gun statistician estimates that the elasticity of demand for her flowers is -0.5. Is Juanita maximizing her p..

  What is the price of the car if the interest rate

A used car dealer in Las Cruces placed the following advertisement: What is the price of the car if the interest rate is 12% per year compounded monthly? If financing is done at 12% APR, what would be the equivalent uniform monthly payment?

  Increase the share of expenditures on corporate jet travel

What effect, if any, does each of the following events have on the price elasticity of demand for corporate-owned jets? The cost of manufacturing corporate jets rises. Reduced corporate earnings lead to cuts in travel budgets and increase the share o..

  Elucidate how electrical monopolist would determine

Graphically elucidate how electrical monopolist would determine its profit maximizing price and output level. Identify the area of consumer and producer surplus for the profit maximizing monopoly.

  Calculate the markets total demand

Suppose that you have estimated the following demand curve: QDP I = 1200 - 4+ .01

  Issue of tax today

- What are the current policies at the Federal level? - What are differences between federal policies and state policies? - How important is this issue to Americans overall?

  Optimizing performance

Explain three (3) approaches that network administrators can use in order to ensure a fault tolerant network design without a single point of failure.

  Important that each organisation develop

Why is it important that each organisation develop, as part of their strategic planning process

  Using maximum payoff is medical treatment versus prevention

A classic example of decision analysis using maximum payoff is medical treatment versus prevention. Many healthcare organizations and professional groups face this difficult decision. Describe the process of coming to a decision about whether to scre..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd