Calculate the funding gap for Global Bank |Finance

Calculate the funding gap for Global Bank |Finance

Chapter 7

1. Bank of US 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? â€¨Show all work and discuss results.

2. Bank ABC 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. What is the net interest income in dollars if the spot prices at the end of the year are $1.50/£ and €1.65/$? Show all your work and discuss your results.

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Chapter 8

3. The following information details the current rate sensitivity report for Global Bank, Inc. ($ million).

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.

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

1. What is the weighted average maturity of assets?
2. What is the weighted average maturity of liabilities?
3. What is market value of the ten-year loan if all market interest rates increase by 2

    percent?

1. 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.

Chapter 9

5. The following information is about current spot rates for Mega Savings’ assets (loans) and liabilities (CDs). All interest rates are fixed and paid annually.

1. If rates do not change, the balance sheet position that maximizes the FI’s returns is?
2. What is the duration of the two-year loan (per $100 face value) if it is selling at par?
3. If the FI finances a $500,000 2-year loan with a $400,000 1-year CD and equity, what is the leveraged adjusted duration gap of this position? Use your answer to the previous question.
4. Use the duration model to approximate the change in the market value (per $100 face value) of two-year loans if interest rates increase by 100 basis points.
5. What is the duration of this Treasurynote?

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Chapter 10

6. Textbook Problem page 329 complete questions 49 and discuss your results.

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7. The following represents two yield curves.

1. What is the implied probability of repayment on one-year B-rated debt?ʉ۬Show work and discuss.

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8. ONC Corporation has a $200,000 loan that will mature in one year. The risk-free interest rate is 6 percent. The standard deviation in the rate of change in the underlying asset’s value is 12 percent, and the leverage ratio for ONC is 0.8 (80 percent). The value for N(h1) is 0.02743, and the value for N(h2) is 0.96406.
What is the current market value of the loan? â€¨Briefly discuss.

Chapter 11

9. Use the following information to answer following questions:


1. What is Bank A’s standard deviation of its asset allocation proportions relative to the national banks average? Use the formula in the textbook. What does the result mean?
2. What is Bank B’s standard deviation of its asset allocation proportions relative to the national banks average? Use the formula in the textbook. What does the result mean?

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10. Big Bank has a policy of limiting their loans to any single customer so that the maximum loss as a percent of capital will not exceed 20 percent for both secured and unsecured loans. The limit has been adopted under the assumption that if the unsecured loan is defaulted, there will be no recovery of interest or principal payments. For loans that are secured (collateralized), it is expected that 40 percent of interest and principal will be collected.

What is the concentration limit (as a % of capital) for secured loans made by this bank?

Chapter 12

11. Textbook Question Web Question on page 386 and also include your own opinions and brief summary.

12.


 a. If the bank’s expected net deposit drain is +4 percent, what is the bank’s expected liquidity requirement? â€¨Show work and discuss your results.

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