Suppose the central bank of Economy B wants to increase the dollar money supply with an increase in bank reserves by around $36 billion over a short period of time. Further suppose that a commerical bank in Economy B wants to borrow such an amount from the central bank for nine days by means of a repo agreement with an annualized interest rate of 3.526% p.a. and its $36 billion government securities as collateral. Assume that there are 360 days per year in your calculation. Illustrate with calculations how this transaction would proceed.

Suppose the central bank of Economy B wants to increase the dollar money supply with an increase in bank reserves by around $36 billion over a short period of time. Further suppose that a commerical bank in Economy B wants to borrow such an amount from the central bank for nine days by means of a repo agreement with an annualized interest rate of 3.526% p.a. and its $36 billion government securities as collateral. Assume that there are 360 days per year in your calculation. Illustrate with calculations how this transaction would proceed.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose the central bank wishes to increase the money supply by $500 million and does so by purchasing one-year zero coupon bonds from an economic agent to increase bank reserves. If the central bank buys bonds with an interest rate of 2.5%, how many bonds must they buy to reach their targeted increase in the money supply? Assume the required reserve ratio is 10% and commercial banks fully loan out. Hint: you will need to use the money multiplier in this answer as well as bond pricing - a zero coupon bond is a promise to pay $1000 in one year. Assume there is no currency in the
A bank has entered into a forward contract to sell 50,000 ounces of gold at $1,500 per ounce with a remaining life of 6 months. The current price of gold is $1,292.40 per ounce and the risk-free interest rate is 2% p.a. (continuously compounded). What is the credit equivalent amount of the bank’s position, i.e., max(V,0) + a*L, under Basel I? Assume the add-on factor is equal to 1.0% the principal. a. Zero b. $750,000 c. $9.6 million d. $10.4 million
D1. Please redraw the balanced T-account.
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…
Find the present worth, from a bank’s perspective, of a loan that has annual payments that began at $300 and fell to $220 at a constant rate between the first payment at the end of the first year and the end of the fifth year. The rate of interest is 10%. Typed answer please. I ll rate
Bank A expects the New Zealand dollar (NZ$) is going to appreciate in the next five days from $0.48 to $0.50, and the following annual interest rates are: Currency Lending Rate Borrowing Rate Dollars 7.10% 7.50% New Zealand dollar (NZ$) 6.80% 7.25% Bank A has the capacity to borrow either NZ$10 million or $5 million. If the bank's expectation is correct, the dollar profit can be generated over the five-day period is ___________. A. $134,862 B. $491,225 C. $503,320 D. $208,044
Assume that banks lend out all their excess reserves. Currently, the total reserves that banks hold equal $32.8 billion. If the Federal Reserve decreases its reserve requirement from 8.2 percent to 6 percent, then there is potential for the whole banking system to raise the money supply by: O $8.8 billion O $10 billion. $246 billion. O $146,7 billion O $256 billion.
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8

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