What are some of the practical difficulties in arranging

Assignment Help Finance Basics

Reference no: EM133325592

Case: A commercial bank has $200 million of four-year maturity floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of four-year maturity fixed-rate deposits costing 9 percent. The commercial bank can issue four-year variable-rate deposits at the T-bill rate plus 1.5 percent. A savings bank has $200 million of four-year maturity mortgages with a fixed rate of 13 percent. They are financed with $200 million in four-year maturity CDs with a variable rate of the T-bill rate plus 3 percent. The savings bank can issue four-year long-term debt at 12.5 percent.

Question 1: Discuss the type of interest rate risk each FI faces.

Question 2: Propose a swap that would result in each FI having the same type of asset and liability cash flows. End of Year T-Bill Rate 1. 1.75% 2. 2.00 3. 2.25 4. 2.50

Question 3: Show that this swap would be acceptable to both parties.

Question 4: The realized T-bill rates over the four-year contract period are as follows: Calculate the realized cash flows on the swap and the net interest yield for the savings bank and the commercial bank over the contract period.

Question 5: What are some of the practical difficulties in arranging this swap?

Reference no: EM133325592

Questions Cloud

Describe jiro as a product of contract-based relations : Use Bushido as an ethical system to describe Jiro-the main character in Jiro Dreams of Sushi-note where honor and contract come into conflict.

What set of transactions today will generate : FIN 3310 Baylor University what set of transactions today will generate an arbitrage profit for you? Show that the conditions of arbitrage are met regardless

What is the dividend growth rate investors expect : COM 4251 Florida State University what is the dividend growth rate investors expect? (round to nearest percent) Hint: When the constant-growth formula is solved

Display id, name of the product with lowest standard price : Display the ID, name of the product with the lowest standard price.Display the name, address of the customers who have not made any orders.

What are some of the practical difficulties in arranging : Discuss the type of interest rate risk each FI faces and What are some of the practical difficulties in arranging this swap

How access to social campaigns can be convenient : Discuss with at least FIVE (5) examples how access to social campaigns can be convenient and pleasant for target audience.

Financial reform act since the great depression : Financial reform act since the Great Depression, setting a new benchmark for global financial regulatory reform. The core content is to protect consumers

Article two 16-year-old toronto boys charged with robbing : How does the article Two 16-year-old Toronto boys charged with robbing four North York banks over seven months relate to hirschi's social bond theory?

Create a subclass of groceryproduct named weightproduct : Create a subclass of GroceryProduct named WeightProduct. This class has one more instance variable named weight. Declare the WeightProduct class as a subclass

User Account

All Pages