4. Assume for US bank the interest rate on loans is 10% and on Treasury bonds 8%. The interest rate on the cost of funds through savings is 2% while the Federal funds rate is 5%. Show how each of the following transactions affect on banks financial statements. For each you need to show (a) The component of financial statement that is affected. (b) The direction ((+/-)). (c) The quantum of change. For example see Eg. below. Transactions Eg. The bank issues $100 of new stocks and uses Loans the proceeds to make +$100 loans Asset 1. Britt deposited $200 in checking account. 2. The $300 new loan is made. Liability Stocks +$100 Impact on Income $100 x 5% Expense Profits $5
4. Assume for US bank the interest rate on loans is 10% and on Treasury bonds 8%. The interest rate on the cost of funds through savings is 2% while the Federal funds rate is 5%. Show how each of the following transactions affect on banks financial statements. For each you need to show (a) The component of financial statement that is affected. (b) The direction ((+/-)). (c) The quantum of change. For example see Eg. below. Transactions Eg. The bank issues $100 of new stocks and uses Loans the proceeds to make +$100 loans Asset 1. Britt deposited $200 in checking account. 2. The $300 new loan is made. Liability Stocks +$100 Impact on Income $100 x 5% Expense Profits $5
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:4. Assume for US bank the interest rate on loans is 10% and on Treasury bonds 8%. The interest rate
on the cost of funds through savings is 2% while the Federal funds rate is 5%. Show how each of
the following transactions affect on banks financial statements. For each you need to show (a) The
component of financial statement that is affected. (b) The direction ((+/-)). (c) The quantum of
change. For example see Eg. below.
Transactions
Eg. The bank issues $100
of new stocks and uses Loans
the proceeds to make +$100
loans
Asset
1. Britt deposited $200
in checking account.
2. The $300 new loan is
made.
Liability
Stocks
+$100
Impact on
Income
$100 x 5%
Expense
Profits
$5
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