Assignment : Money and Banking

1. Rank the following bank assets from most to least liquid:
a. Commercial loans
b. Securities
c. Reserves
d. Physical capital

2. NewBank started its first day of operations with $155 million in capital. A total of $92 million in checkable deposits is received. The bank makes a $28 million commercial loan and lends another $23 million in mortgage loans. If required reserves are 5.4%, what does the bank balance sheet look like?

3. The bank you own has the following balance sheet:
Assets                 Liabilities
Reserves              $75 million
Deposits              $500 million
Loans                  $525 million
Bank capital          $100 million

If the bank suffers a deposit outflow of $50 million with a required reserve ratio on deposits of 10%, what actions should you take?

4. Suppose you are the manager of a bank that has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25 million of fixed-rate liabilities, and $20 million of rate-sensitive liabilities. Conduct a gap analysis for the bank, and show what will happen to bank profits if interest rates rise by 5 percentage points. What actions could you take to reduce the bank's interest-rate risk?