MHM Bank currently has $750 million in transaction deposits on its balance sheet.The current reserve requirement is 8 percent, but the Federal Reserve is increasingthis requirement to 10 percent.a. Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bankconverts all excess reserves to loans, but borrowers return only 60 percent of thesefunds to MHM Bank as transaction deposits.b. Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bankconverts 70 percent of its excess reserves to loans and borrowers return 80 percentof these funds to MHM Bank as transaction deposits.Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts all excess reserves to loans, but borrowers returpercent of these funds to MHM Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations.your "Panel B" answers to 3 decimal places. (e.g., 32.161))Panel A: Initial Balance SheetsFederal Reserve BankAssetsLiabilitiesSecurities$60 millionReserve accounts$60 millionМНМ BankAssetsLiabilitiesLoans$690 millionTransaction deposits$750 millionReserve deposits at Fed60 millionPanel B: Balance Sheet after All ChangesFederal Reserve BankAssetsLiabilitiesSecuritiesmillionReserve accountsmillionМНМ BankAssetsLiabilitiesLoansmillionTransaction depositsmillionReserve deposits at FedmillionShow the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts 70 percent of its excess reserves to loans and bcreturn 80 percent of these funds to MHM Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calRound your "Panel B" answers to 3 decimal places. (e.g., 32.161))Panel A: Initial Balance SheetsFederal Reserve BankAssetsLiabilitiesSecurities$70 millionReserve accounts$70 millionМНМ BankAssetsLiabilitiesLoans$632 millionTransaction depositsmillionReserve deposits at Fed70 millionPanel B: Balance Sheet after All ChangesFederal Reserve BankAssetsLiabilitiesmillionmillionМНМ BankAssetsLiabilitiesmillionmillimillion

GIVEN MHM Bank currently has $750 million in transaction deposits on its balance sheet. The…

Answered: MHM Bank currently has $750 million in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose a bank currently has $250,000 in deposits and $27,000 in reserves. The required reserve ratio is 10%. If at the end of the day, there is an unexpected withdrawal of $4,000 in reserves, what is the bank's resulting reserve ratio (expressed as a %)? Using the information from the prior problem, how much would the bank need to borrow in either the Fed Funds market or at the discount window, to be in complicance with the required reserve ratio?
A bank has three assets. It has $75 million invested in consumer loans with a three-year duration, $39 million invested in T-bonds with a 16-year duration, and $39 million in six-month maturity T-bills. What is the duration of the bank's asset portfolio in years? Group of answer choices 11.51 years 7.38 years 3.95 years 5.68 years
Suppose First Main Bank, Second Main Bank, and Third Main Bank all hold zero excess reserves. The required reserve ratio is 20%. Suppose that the Federal Reserve buys a government bond worth $1,500,000 from Jack, a client of First Main Bank. He immediately deposits the money into his checking account at First Main Bank. As a result of this transaction, the required reserves for First Main Bank will increase by $ type your answer... and its excess reserves will increase by $ type your answer...
Use the data provided for Gotbucks Bank Inc. to answer this question. Notes to the balance sheet: Currently, the fed funds rate is 8.5 percent. Variable-rate loans are priced at 4 percent over LIBOR (currently at 11 percent). Fixed-rate loans are selling at par and have five-year maturities with 12 percent interest paid annually. Core deposits are all fixed rate for two years at 8 percent paid annually. Euro CDs currently yield 9 percent. (LG 23-3) Gotbucks Bank Inc.(dollars in milllions) Assets Liabilities Cash $30 Core Deposits $20 Federal Funds 20 Federal Funds 50 Loans (floating) 105 Euro Cds 130 Loans (Fixed) 65 Equity 20 Total Assets $220 Total Liabilities and Equity $220 d. If the duration of GBI’s Euro CDs and fed fund liabilities is 0.401 year, what is the duration of the bank’s liabilities? e. What is GBI’s duration gap? What is its interest rate risk exposure? If all yields increase by 1 percent, what is the impact on the market…
Yoo, Incorporated, has arranged a line of credit that allows it to borrow up to $51 million at any time. The interest rate is 627 percent per month. Additionally, the company must deposit 5 percent of the amount borrowed in a noninterest-bearing account. The bank uses compound interest on its line-of-credit loans. If the company needs $27 million for 8 months, how much will it pay in interest? Multiple Choice $1.307,50417 $1,457,29019 $1619,200.22 $1.230.592.16) $1,384,41618
On April 2, 2020, shortly after the $7.5 million deposit outflow, Key Bank had borrowed the needed fund in the fed funds market to cover the shortfall in reserves for the remainder of the month (29 days, from 4/2 to 4/30). The required yield on a discount basis was 1.5%. On April 30, 2020, Key Bank finally received the first required payments from its mortgages, loan, and T-bills, and it also paid off its fed funds loan. Key Bank was required to establish a loan loss reserve at 0.5% of the commercial loan value and the bank was in the 35% tax bracket. The bank had not engaged in any off-balance- sheet activities. Question: What was the value of bank's risk-weighted assets (RWA) for its first month of operation? O $155,932,756.48 O $160,773,451.60 O $175,402.215.43 O $130,426,340.40
Summit Record Company is negotiating with two banks for a $122,000 loan. Fidelity Bank requires a compensating balance of 20 percent, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a compensating balance of 10 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 9 percent. Compensating balances will be subtracted from the $122,000 in determining the available funds in part a. a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank a-2. Which loan should Summit accept? Southwest Bank O Fidelity Bank Effective Rate of Interest b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $24,400 at each bank in deposits that will serve as compensating balances. (Do not round intermediate…
Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Federal Reserve buys a government bond worth $750,000 from Lorenzo, a customer of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's balance sheet (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effects of the new deposit on excess and required reserves, assuming a required reserve ratio of 20%. Hint: If the change is negative, be sure to enter the value as a negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 750,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Juanita, who immediately…
ABC Corporation got a $45 million line of credit of which it is expected to use 65%. ABC was given an 9% interest rate with a 1% front-end fee and a 1/2% commitment fee on the unused balances; a 7% compensating balance on any usage plus a 5% compensating balance on the total line. (The compensating balances earn zero interest.) The bank has a 15% reserve requirement. a) What is the bank’s effective yield on the line? b) What is the borrower’s effective cost? c) Suppose the borrower wants to exchange compensating balances for a higher interest rate, what would be the new rate of interest?
Q5. First National Bank has the following balance sheet and faces a required reserve ratio on deposits of 10%: Assets Reserves $50 million Securities $50 million Loans $100 million Liabilities Deposits $150 million Bank capital $50 million 1. This banks earn $10 million as an annual after-tax profit. Calculate ROA (return on asset) and ROE (return on equity) for both banks. 2. Assume that depositors withdraw $60 million and the bank experience a $30 million loans default. How should the bank balance sheet change?
(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 14 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $90,000 for a period of 6 months, what is the annualized cost of the bank loan? The annualized cost of the bank loan is %. (Round to two decimal places.)
The table below is the balance sheet for the Oilers Bank, which has a target reserve ratio of 5%. Liabilities/Equity Demand Deposits Shareholders' equity Assets $4,000 62,000 17,000 9,000 Reserves $72,000 20,000 Loans Securities Fixed assets Total 92,000 Total 92,000 a. The Oilers Bank is over-reserved v by $ b. The bank makes a loan equal to the excess reserves and the borrower writes a cheque (for the full amount of the loan) to another customer of the bank, who then deposits it. The new amount of excess reserves is $ c. Instead, the cheque written by the borrower is cleared against the Oilers Bank (the cheque was written to a customer of another bank). The amount of excess reserves held by the Oilers Bank is $ 14 of 40 Next > < Prev

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MHM Bank currently has $750 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is increasing this requirement to 10 percent.