Answered: Consider the following asset and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the following asset and liability structures: County Bank Asset: $ 10 million in a one- year, fixed- rate commercial loan Liability: $ 10 million in a three- month CD City Bank Asset: $ 10 million in a three- year, fixed- rate commercial loan Liability: $ 10 million in a six- month CD a. Is FSB positioned to profit or lose if interest rates rise over the next 90 days? Include in your discussion an analysis of the most likely rate environment. b. Suppose that management has misstated the rate sensitivity of the bank’s money market deposit accounts because the bank has not changed the rate it pays on these liabilities for six months and doesn’t plan to change them in the near future. Will the bank profit if rates rise over the next 90 days?

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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