Bruce the Bank Manager can reduce interest rate risk by_____ the duration of the bank's assets to increase their rate sensitivity or, alternatively, _____ the duration of the bank's liabilities. Question 6 options: A) shortening; shortening B) lengthening; lengthening C) shortening; lengthening D) lengthening; shortening

Bruce the Bank Manager can reduce interest rate risk by_ the duration of the bank's assets to increase their rate sensitivity or, alternatively, _ the duration of the bank's liabilities. Question 6 options: A) shortening; shortening B) lengthening; lengthening C) shortening; lengthening D) lengthening; shortening

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter27: Money And Banking

Section: Chapter Questions

Problem 18RQ: What is the risk if a bank does not diversify its loans?

See similar textbooks

Related questions

Q: Regulations that reduced competition between banks included branching restrictions. bank reserve…

A: In the banking sector, siem regulations are imposed on the banks to maintain the effectiveness of…

Q: 28. The interest rate paid on bonds decreases from 6% to 2%. This will causeA) no change in the…

A: We are authorized to answer one question at a time since you have not mentioned which question you…

Q: The two major functions of commercial banks are to: Group of answer choices a. Maintain checking…

A: Commercial banks are financial institutions that accept deposits, provide checking account services,…

Q: Suppose a bank's assets have an average duration of 3 years, and its liabilities have an average…

A: In a market, duration gap refers to the market analysis approach which examines the sensitivity of…

Q: QUESTION 3 One view of the role of Banks is that they create liquidity. What does this liquidity…

A: Commercial banks plays a significant role in the growth of an economy as it creates liquidity to…

Q: During a recession, which of the following actions are private banks likely to take? Question 28…

A: During a recession, the economy battles, individuals lose work, organizations make less deals and…

Q: In a scenario where market interest rates suddenly increase by 2%, for which bank will gap analysis…

A: Interest rate The market rate of interest is considered as a rate that is prevailing in the market…

Q: If a bank borrows funds owned by another bank (not the Fed) the interest rate agreed to between the…

Q: In response to the sharp decline in stock prices in October 1987, the Federal Reserve a. decreased…

A: There is a negative relationship between the stock price and the interest rate. If the interest rate…

Q: 1. The structure of financial markets is influenced by the problems relating to asymmetric…

A: Asymmetric information refers to a situation in which one party has more information than the other…

Q: Suppose Bank A has $35 million in rate-sensitive assets, $70 million in fixed rate assets, $70…

A: Change in profit can be calculated by using the following formula.

Q: nis occurs, the commercial banks respond to in the demand for loans by.. An increase; buying…

A: Open market operations ("OMOs") are the national bank's essential device of financial arrangement.…

Q: Which of the following describe a common cause of bank panics? Check all that apply. 1. Potential…

A: * ANSWER :- (1) From the given information the answer is provided below as follows.

Q: Match the situation with its corresponding risk category v The Federal Reserve increases capital…

A: 1. Market risk 2. Legal. Risk 3. Credit Risk 4. Settlement risk 5. Operational risk

Q: List the names of the current chairperson of the Federal Reserve and members of the Board of…

A: Since there are multiple questions posted here, the first one only will be answered in this session.…

Q: (S1) Banks charge larger bid/ask spreads than they would on less liquid, less traded currencies.…

A: When talking about bank's bid, it can be said that the ask bid is the bid at which banks offer an…

Q: Assume that Annovo Financial and Bennovo Financial were banks with the same financial condition,…

A: Financial institutions, sometimes known as banks, are companies that operate as middlemen in a…

Q: 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% LL 2.0% 1.5% 1.0% 0.5% 0.0% $0 $10 $20 $30 $40 $50…

A: The federal funds rate lies between the discount rate and the interest on the reserves rate.

Q: Topic: Federal Reserve and the Central Bank Question : What is the difference between illiquid…

A: Bank solvency alludes to your total assets — that you have a larger number of resources than…

Q: The following table shows the initial balance sheet of a hypothetical bank. There are no reserves…

A: Assets are anything that yields benefits to the business firms in future. Its examples are cash,…

Q: First National Bank Assets Liabilities Rate-sensitive $80 million $50 million Fixed-rate $20…

A: Answer: Correct option: (B) increase by $1.5 million Explanation: If the interest rate changes then…

Q: Question 13 Two of the economy's most important financial intermediaries are suppliers of funds and…

A: Financial Intermediaries:- Financial intermediaries play a role of middlemen for fund transfers,…

Q: Suppose the federal funds rate is not close to zero, risk spreads are roughly constant so that…

A: The central bank controls the quantitative credit policy controls by various instruments which…

Q: When a commercial bank borrows from the Federal Reserve, it pays the ________ rate, whereas if it…

A: The commercial banks financial institutions that accept the deposits from the people and lend money…

Q: Explain interest rate risk and how it arises from a bank’s perspective with specific reference to…

A: The danger posed by a change in interest rates is known as interest rate risk.

Q: #15 if the discount rate is lowered, banks borrow a less from the Fed so reserves increase. b less…

A: Discount rate is the rate of interest at which depository institutions procure or borrow money from…

Q: First National Bank Assets Liabilities Rate-sensitive $40 million $50 million Fixed-rate…

A: Interest sensitive liabilities are short-term deposits with variable interest rates that a bank…

Q: True or false question below. In the United States, the Federal Deposit Insurance Corporation…

A: Federal Deposit Insurance Corporation, is an agency created in 1933 after great depression to…

Q: First National Bank Assets Liabilities Rate-sensitive $40 million $50 million Fixed-rate $60…

A: given that, First National Bank Assets Liabilities Rate-sensitive $40 million $50 million…

Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

Bruce the Bank Manager can reduce interest rate risk by_____ the duration of the bank's assets to increase their rate sensitivity or, alternatively, _____ the duration of the bank's liabilities.

Question 6 options:

A)	shortening; shortening

B)	lengthening; lengthening

C)	shortening; lengthening

D)	lengthening; shortening

Expert Solution

This question has been solved!

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

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

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

11. Macroland has a very simple banking system, in which there is only one chartered bank (The First Bank). The government of Macroland imposes a minimum required reserve ratio of 3%. Individuals in Macroland hold a fixed amount of $1200 in the form cash to facilitate their daily transactions and will deposit any excess amount of money into their bank accounts. The initial balance sheet of the First Bank is as follows: Assets Liabilities & Equity Reserves $255 Chequable deposits $7500 Loans $7400 Shareholder equity $155 Note: Unless otherwise stated, the First Bank will hold the excess reserves fixed at the current level as shown in the initial balance sheet and will lend out any surplus of reserves beyond this. a. Find the required reserves and the excess reserves held by the First Bank. b. Suppose there is a change in money demand such that people increase their cash holdings by $45 by withdrawing cash from their bank accounts. By how much will the money supply change? c. Return to…
True or False: 1. The main reason people demand and hold money instead of ex bonds, is that it earns interest payment. Type out the correct answer and give proper explanation of why true n why false . Answer within 40 min.thank you
31) The FDIC must take steps to close down banks whose equity capital is less than ________ of assets. A) 4% B) 3% C) 2% D) 1% 32) Off-balance-sheet activities A) generate fee income with no increase in risk. B) increase bank risk but do not increase income. C) generate fee income but increase a bank's risk. D) generate fee income and reduce risk. 33) The Basel Accord, an international agreement, requires banks to hold capital based on A) risk-weighted assets. B) the total value of assets. C) liabilities. D) deposits. 34) The Basel Accord requires banks to hold as capital an amount that is at least ________ of their risk-weighted assets. A) 10% B) 8% C) 5% D) 3% 35) Under the Basel Accord, assets and off-balance sheet activities were sorted according to ________ categories with each category assigned a different weight to reflect the amount of ________. A) 2; adverse selection B) 2; credit risk C) 4; adverse selection D)…
11. Currently, deposits are insured by the FDIC up to ___________ per depositor per bank. Question 11 options: a) $1,000,000. b) $250,000. c) $10,000. d) $100,000.
16) Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 percent, the net worth as a percentage of assets would B) decrease; 1.8% C) increase; 1.4% D) decrease; 1.4% by approximately. A) increase; 1.8%
Assume that a bank has demand deposits of $25,000. If the legal reserve requirement is 15% then the bank’s required reserves are? Question 29 options: a) $21,250 b) $15,000 c) $3750 d) $25,000
B3-4 ALL QUESTIONS GO WITH GRAPH 1. What would be the level of excess reserves if the required reserve ratio were 20%? a) There would be a shortfall in required reserves of $100,000 b) 0 c) $300,000 d) $900,000 e) $1,000,000 2. If the reserve required ratio is 10%, how much can this bank lend? a) $900,000 b) $1,000,000 c) $1,300,000 d) $500,000 e) $400,000 3. Assume: a required reserve ratio of 10%, this bank is the only one with excess reserves, banks do not wish to hold excess reserves and the public does not wish to increase its cash holdings. What is the maximum amount of new money the banking system can create? a) $900,000 b) $500,000 c) $400,000 d) $4,000,000 e) $5,000,000
29. For a given return on assets, holding other factors constant, Question 29 options: a) a lower capital-to-asset ratio has no effect on the return on equity of the bank. b) the lower is bank capital relative to assets, the higher is the return on equity of the bank. c) the lower is bank capital relative to assets, the lower is the credit risk for the owners of the bank. d) the lower is bank capital relative to assets, the lower is the return on equity of the bank.
39. Consider a fractional-reserve banking system in which an initial deposit of $1,000 can generate up to $4,000 in money. What is the reserve ratio? (A) 4 percent. (B) 5 percent. (C) 25 percent. (D) 75 percent.
QUESTION NINE The best statement that explains the differences between Islamic and conventional bank is A ) in the modern banking system, it has become one of the service-oriented functions of all banks to pay out zakat as their social responsibility. B ) Islamic bank promotes risk-sharing between the provider of capital and the user of funds. In contrast, the fund provider of the conventional bank is assured of a predetermined rate of interest. C ) both conventional and Islamic banks aim to maximize profit but are subject to different restrictions. D ) the functions and operating modes of Islamic banks are based on Shari’ah and manmade principles.
What is the basic obligation of a depository bank to its depositor? Enumerate and explain the different kinds of deposit. X is a depositor of AAA Bank. She has three deposit accounts all under her name. One, in checking account, one in saving account and another in time deposit account. Each account has a balance of P250,000. AAA Bank became insolvent. Philippine Deposit Insurance Corporation closed the Bank. X therefore is unable to withdraw from all of the accounts. She then filed her claims with the Philippine Deposit Insurance Corporation. How much can X claim for all the three accounts? Explain. ABC Bank was forced to close because its building was destroyed by fire. Mr. A, one of its depositors filed an insurance claim with the Philippine Deposit Insurance Corporation. Will the claim prosper? Answer with reasons. A, Mr. B and Mr. C have the following accounts in the closed XY Bank: Account No. 1 in the name of Mr. A, P150,000, Account No. 2 in the name of “Mr. A in trust for Mr.…
Given that banks are operating within a highly disruptive economy it is imperative that a robust Technology Risk Management Framework (TRMF) is in place.i. Name two risk factors that need to be taken into account in the TRMF? ii. Describe two scenarios that could constitute a risk to the bank if the factors mentioned in Question i. were not taken into consideration. iii. What is the possibility of these risks occurring and what would the impact to the bank be? iv. Describe how you would prioritise the risks to ensure the least impact?