Oldhat Financial starts its first day of operations with$11 million in capital. A total of $120 million incheckable deposits are received. The bank makes a$30 million commercial loan and another $40 million in mortgages with the following terms: 200 standard,30-year, fixed-rate mortgages with a nominal annualrate of 5.25%, each for $200,000.Assume that required reserves are 8%.a. What does the bank balance sheet look like?b. How well capitalized is the bank?c. Calculate the risk-weighted assets and risk-weightedcapital ratio after Oldhat’s first day
Macrohedging
Hedging or hedge accounting is a risk-mitigation technique used to protect the current financial position from potential losses. Hedging is often confused with speculating. The major difference between the two is that hedging does not involve guessing, whereas speculation is based on guessing the direction of movement of the underlying asset to book profits.
Finance Mathematics
The area of applied mathematics known as mathematical finance, also known as quantitative finance or financial mathematics is concerned with the mathematical modeling of financial markets. The application of mathematical methods to financial problems is known as financial mathematics. A financial market is a place where people can exchange low-cost financial securities and derivatives. Stocks and bonds, raw materials, and precious metals, both of which are regarded as commodities in the stock markets, are examples of securities. It uses probability, statistics, stochastic processes, and economic theory as methods.
Oldhat Financial starts its first day of operations with
$11 million in capital. A total of $120 million in
checkable deposits are received. The bank makes a
$30 million commercial loan and another $40 million in mortgages with the following terms: 200 standard,
30-year, fixed-rate mortgages with a nominal annual
rate of 5.25%, each for $200,000.
Assume that
a. What does the bank balance sheet look like?
b. How well capitalized is the bank?
c. Calculate the risk-weighted assets and risk-weighted
capital ratio after Oldhat’s first day
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