if the duration of a bank's assets is 3.5 and the duration of the liabilities is 2.5, the bank has $45 of assets and $35 of liabilities, what is the bank's duration gap? What will be the chage in the bank's capital if the interest rate rises from 4% to 5%

if the duration of a bank's assets is 3.5 and the duration of the liabilities is 2.5, the bank has $45 of assets and $35 of liabilities, what is the bank's duration gap? What will be the chage in the bank's capital if the interest rate rises from 4% to 5%

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter12: Money, Banking And The Financial System

Section: Chapter Questions

Problem 3WNG

See similar textbooks

Related questions

Q: Part a Determine the ERR for this project. N 3 4 5 6 % $27 $27 $27 $27 $27

A: To calculate the Economic Rate of Return (ERR) for the given cash flow profile, we need to determine…

Q: A large wood products company is negotiating a contract to sell plywood overseas. The fixed cos of…

A: Variable cost refers to expenses that vary in direct proportion to the level of production or sales…

Q: Which of the following options is correct in the long run? a. More firms will enter the industry in…

A: In economics, the long run is a timeframe in which all elements of production are variable. This…

Q: 1. Let C denote the total national consumption (in billions of euro) for a certain country and let I…

A: MPC stands for Marginal Propensity to Consume. It represents the proportion of an additional unit of…

Q: What does the movement from point A to point C represent on the below graph: Price (dollars per…

A: Demand refers to the quantity of a goods or service that a consumer is willing and able to buy at a…

Q: How can monetary policy, fiscal policy and financial sector regulation help in the fight against…

A: Central bank refers to institutions of an economy that regulates the money supply using its monetary…

Q: Use diagram to explain what will happen to the exchange rate between the rand and the US Dollar if…

A: The value of one currency in another currency's terms is known as the nominal exchange rate. It also…

Q: Draw the following graphs below depicting the following information: Graph 1: Trinbago's PPF…

A: PPF represents the range of goods and services a given economy can produce given the extent of its…

Q: How can monetary policy, fiscal policy and financial sector regulation help in the fight against…

A: Economic cost refers to the value or sacrifice of resources incurred in the production or…

Q: A firm is evaluating a project that requires equipment that costs $725,000. Installation costs are…

A: To calculate the firm's depreciation expense in year three for the equipment falling under the MACRS…

Q: Use the table below to answer the following questions. O a. $6.25. O b. $5. Oc $4.25. O d. $25. Oe.…

A: Marginal cost refers to the additional cost incurred by producing one additional unit of a good or…

Q: The graph shows the supply curve of sweaters. Now the number of suppliers of sweaters decreases and…

A: Law of supply states that, keeping other factors constant, an increase in price results in an…

Q: Suppose that a paper mill “feeds” a downstream box mill. For the downstream mill, the marginal…

A: Total revenue determines the amount earned from the quantity produced.Economic costs involve not…

Q: In a perfectly competitive market, when the market price of a good is $40. Referring to the below…

A: Since you have posted multiple questions, we will provide the solution only to the first question as…

Q: circus tickets and the cost for producing the circus. Price and cost (dollars per unit) 20 18 16 14…

A: Monopoly is a form of market structure in which a single firm sells a commodity for which there are…

Q: ACME Anvil Corporation has done extensive analysis of their current process and found the following…

A: Internal failure costs are expenses incurred by a company as a result of defects, errors, or…

Q: 3 The second welfare theorem Two agents meet to trade two goods. Agent 1 has utility function u¹(x¹)…

A: Agent 1 -Utility function : ln x1 + ln x2Endowment : (3 ,4 )Budget constraint : 3p1 + 4p2 = p1x1 +…

Q: What do you mean by 'production function"?

A: A production function is an economic concept that represents the relationship between inputs and…

Q: The following graph shows demand and cost curves of the only cinema in a small county town. The…

A: Under a monopoly, a single seller faces the entire market demand on his own. Here, the seller…

Q: Determine which of the following options are accurate if there is an increase in price of the good…

A: Total revenue increases with increasing price in elastic region

Q: y spatial relationship of the countries Nepal, Jamaica, Senegal and Brazil?

A: The core-periphery spatial relationship refers to the economic and spatial interdependence between…

Q: Calculate the bank’s ROA on this loan.

A: Return on Assets (ROA) is a financial ratio that measures how efficiently a bank uses its assets to…

Q: Alpha limited commenced business on 1January 2022 with a single item of inventory costing £120,000.…

A: There are two type of capital maintenance which is financial capital maintenance and physical…

Q: The market for internet access in Olympus has two identical providers – Alcyoneus and Thanatos.…

A: Cournot equilibrium is a concept in economics that describes a situation in an oligopolistic market…

Q: variable, to For example, an increase in the money supply, a variable, will cause the price level, a…

A: Real and nominal variables are economic terms used to describe the difference between variables that…

Q: How does the concept of a cooperation economy promote sustainable development and address income…

A: A cooperation economy is a socio-economic system that prioritizes cooperation and mutual aid over…

Q: Suppose a 10-year, $1,000 bond with a(n) 11% coupon rate and semiannual coupons is trading for a…

A: To calculate the bond's yield to maturity (YTM) and its price when the YTM changes, we can use the…

Q: What would happen in the long if the firm produces 84 units and charges $28? PRICE Data 80 80 20 10…

A: Firm will stay when revenue is enough to cover average variable cost.

Q: What is the future worth of this investment?

A: Future worth(FW) is the value of an asset at a specific date. It measures the nominal future sum of…

Q: Determine how these four sectors would react to an increase in demand for livestock (Sector 1) of…

A: An input-output table depicts the flows of goods and services represented by their monetary value…

Q: work, has searched fo a job, found few prospects, and has left the labor force is considered: A BU C…

A: Unemployment is simply the scenario whereby somebody who is able and willing to work , can't find…

Q: If the government sets a price ceiling of $4, there would be an: 18 16 14 12 10 8 6 4 2 X D₁ 2 4 6 8…

A: Price ceiling refers to a situation of fixing the maximum price at a level lower than equilibrium…

Q: What can be determined by the slope of the curve. The relationship between the relative price of…

A: “Since you have posted multiple questions, we will provide the solution only to the first question…

Q: (a) Find the down payment. The down payment is $.

A: Here, given that the building sells for $275,000 and a 4% down payment is made.Then, we have to find…

Q: The Role Of Strategic Priorities In Health Care

A: Health economics becomes relevant in modern times mainly because it highlights how and why people…

Q: Suppose that the bank holds $15m of treasury bonds, $10m of reserves, $30m of checkable deposits,…

A: A commercial bank's operations can be monitored through its balance sheet. It has two sides-Assets-…

Q: Describe what happens in the long run: 36 32 28 24 20 16 12 8 4 MC1 ATC₁ AVC₁ D₁

A: 1. In the long run, every cost and production element is a moving target in economics. 2.The…

Q: How does a company like Walmart, determine its techniques to estimate and forecast its competitive…

A: Determining techniques to estimate and forecast competitive advantage is crucial for companies like…

Q: 11. Recession True or False: The aggregate-demand curve slopes downward because it is the horizontal…

A: Aggregate Demand: The aggregate demand is a sum of private investment demand, government…

Q: Why should Americans be concerned about extreme poverty in other nations? How does the globalized…

A: Due to a number of factors, Americans need to understand how crucial it is to address extreme…

Q: QUESTION 47 Cartels are unstable due to all of the following factors except which one? incentive…

A: Cartels: cartels are agreements or arrangements between independent firms or companies in the same…

Q: 109 83 35 18 T B S X Q Dy 223 634 1374 Emissions Consider the figure above if the government imposes…

A: In the given diagram we are provided the per unit cost of abatement curve which is downward sloping.…

Q: If the demand function for a particular purse is p 120-4√, use elasticity to find the price and…

A: Price elasticity is calculated as the percentage change in quantity divided by the percentage change…

Q: The partial data in the table below are for the economy of Arinaka. Planned investment, government…

A: The measure that depicts the value of all of the final services and goods that are being produced…

Q: 9. Consider the two-dimensional graph below and complete the following sentence: The market depicted…

A: The terms "Marshallian stable" and "Walrasian unstable" are used in the context of general…

Q: 5. Profit maximization and shutting down in the short run The following graph plots daily cost…

A: Firms operate in a competitive market based on customer demand and their cost structures. When the…

Q: Using the midpoint method, identify the type of demand between Y and Z? PRICE (Dollars per unit) 140…

A: Price elasticity of demand measures the percentage change in quantity demanded divided by the…

Q: The following figure shows the demand for monopolists Price 20 10- 0 Quantity a) 60 b) 59 c) 96 d)…

A: Monopolist: A monopolist is a single seller in the market and hence he faces the downward sloping…

Q: The Camera Shop sells two popular models of digital SLR cameras. The sales of these products are not…

A: - Optimality of Revenue:Optimality refers to the state or condition of being the best or most…

Q: D Question 21 4300 5,000 500- 300 O 28,000 O 20,000 16,000 In the market for surfboards in the…

A: Consumer Surplus: Consumer surplus is the net benefits that the consumer receives by purchasing…

Question

if the duration of a bank's assets is 3.5 and the duration of the liabilities is 2.5, the bank has $45 of assets and $35 of liabilities, what is the bank's duration gap?

What will be the chage in the bank's capital if the interest rate rises from 4% to 5%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Define the inception of banking

VIEW

Step 2: Calculate the duration gap and the change in capital

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Explain the impact of interest rate change in a bank income and net worth
Assume that the average duration of a bank's assets is four years and the average duration of its liabilities is three years. Assume the bank has the following balance sheet. Assets Liabilities Checkable deposits $100 million Bank 50 million capital Total Assets $150 million and Capital a. If interest rates are expected to increase by 5 percentage points, say from 2% to 7%, what will be the effect on the net worth of Garden bank? Answer: New value of total assets: Total Liabs $150 million New value of bank capital:
A commercial bank has $80000 in deposits. There are $6,000 in actual resources, of which $2,000 are excess reserves. Describe the Rate of return.
For all six questions, please round answers to one decimal place. Consider a bank with $500 million in loans and $375 in deposits. Calculate the bank's net worth. Calculate the bank's leverage ratio. Suppose that $50 million of the bank's loans fail and become worthless. What is the bank's net worth now? What is its rate of return on equity? Imagine that the bank still has $500 million in loans, but now has deposits worth $275 What is the bank's new leverage ratio? Suppose $50 million of the bank's loans fail. Calculate the bank's new rate of return on equity.
An increase in interest rate always lowers the net interest income (NII) of a bank. Is this statement true or false? Explain.
Using the notions of ex ante and ex post interest rates, explain how could a bank be expecting a huge return on its investments and end up with very small real returns?
Suppose a bank's assets have an average duration of 3 years, and its liabilities have an average duration of 5 years. Since this bank has a ________ duration gap, a fall in market interest rates will _______ bank capital. Select one: A. positive; increase B. negative; decrease C. negative; increase D. positive; decrease
If the interest rate goes down, what risk does the bank face in the mortgage market? More borrowers will initiate new mortgages Borrowers are more likely to refinance O They make less money on mortgages that are not refinanced O Fewer borrowers will initiate new mortgages
The balance sheet below represents the current financial situation of a commercial bank named Novatia Bank. Suppose that a 15-year-old takes the $150 cash that she received for her birthday and deposits it in her checking account at Novatia Bank. Assets Cash: $650 Property: $1050 What will happen to the bank's liabilities after the $150 deposit. Balance Sheet Deposits increase cash assets, so they do not affect the liabilities side of a bank's balance sheet. The value of checkable deposits will decrease by $150. The value of checkable deposits will increase by $150. The value of stock shares will decrease by $150. The value of stock shares will increase by $150. Liabilites Stock Shares: $950 Checkable Deposits: $750 What will happen to the bank's assets after the $150 deposit? The value of propery holdings will decrease by $150. The value of cash holdings will increase by $150. The value of cash holdings will decrease by $150. Since deposits are a liability, there is no change to the…
Your bank has the following balance sheet: Assets Liabilities Checkable Reserves $90 million $380 million deposits $130 Securities million Loans $200 million Bank capital $40 million If the required reserve ratio is 20%, what will be the size of this bank (as measured by its total assets or liabilities) after $20 million deposit outflow if it just meets reserve deficiency by taking out a discount loan from the Federal Reserve? $402 million $400 million. OOOO $420 million. $412 million.
Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019. Classic Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 1,000 Deposits 3,000 Securities 2,000 Equity 7,000 Loans & Advances 1,000 Property, Plant and Equipment 6,000 . 10,000 10,000 Prudent Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 600 Deposits 2,500 Securities 1,500 Equity 4,400 Loans & Advances 800 Property, Plant and Equipment 4,000 . 6,900 6,900 Assume a required reserve ratio of 10%. What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded?
If the value of a bank's loan declines, what is the corresponding reduction on the other side of its balance sheet? Equity is reduced by the amount of the decline in the value of the loan. Borrowing from other banks are reduced by the amount of the decline in the value of the loan. Deposits are reduced by the amount of the decline in the value of the loan. Cash is reduced by the amount of the decline in the value of the loan.