a) Assume a bank only has three assets listed below and plans to liquidate these assets. We list their face values, liquidation values today, and their anticipated liquidation values one year from now (their fair market values). Current liquidation Asset Treasury bills Short-term bonds Face value value $110,000 $30,000 $125,000 20,000 60,000 Long-term bonds 100,000 80,000 170,000 Calculate the one-year liquidity index for these assets. Please show each step of your calculation. One-year liquidation 30,000 value

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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A & B ONLY

a) Assume a bank only has three assets listed below and plans to liquidate these
assets. We list their face values, liquidation values today, and their anticipated
liquidation values one year from now (their fair market values).
Current liquidation
Asset
Face value
$30,000
20,000
value
100,000
Treasury bills
Short-term bonds
Long-term bonds
170,000
Calculate the one-year liquidity index for these assets. Please show each step of your
calculation.
$110,000
30,000
One-year liquidation
80,000
value
$125,000
60,000
b) Please explain the difference between technology risk and operational risk. Please
also include examples in your explanation.
c) Evaluate the following statement: "Off-balance-sheet (OBS) activities generate
many benefits to a bank and thus the OBS activities are not risky for a bank".
d) Based on banks' asset size, commercial banks are divided into retail banks and
wholesale banks. Explain the differences between retail banks and wholesale banks.
Transcribed Image Text:a) Assume a bank only has three assets listed below and plans to liquidate these assets. We list their face values, liquidation values today, and their anticipated liquidation values one year from now (their fair market values). Current liquidation Asset Face value $30,000 20,000 value 100,000 Treasury bills Short-term bonds Long-term bonds 170,000 Calculate the one-year liquidity index for these assets. Please show each step of your calculation. $110,000 30,000 One-year liquidation 80,000 value $125,000 60,000 b) Please explain the difference between technology risk and operational risk. Please also include examples in your explanation. c) Evaluate the following statement: "Off-balance-sheet (OBS) activities generate many benefits to a bank and thus the OBS activities are not risky for a bank". d) Based on banks' asset size, commercial banks are divided into retail banks and wholesale banks. Explain the differences between retail banks and wholesale banks.
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