Question Description
Question 1:
The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, established in 1987 to contribute to the safety and soundness of the Canadian financial system. OSFI supervises and regulates federally registered banks and insurers, trust and loan companies, as well as private pension plans subject to federal oversight.
Go to OSFI website – under Financial Institutions – select Financial Data – select Bank.Populate the most recent consolidated balance sheet of the bank of your choice,and attach a printout.
- What is the total amount of loans held by the bank
- What is this number as a percentage of total bank assets?
- Calculate the Equity Multiplier.
- Would you buy the share of this bank as an investment? Explain
Question 2:
Bank AAA has $15 million of fixed-rate assets, $30 million of rate-sensitive assets,
$25 million of fixed-rate liabilities, $20 million of rate-sensitive liabilities, 5 million of demand deposit, 10 million of securities, and 0.6 million of reserves. Assume that the required reserve is 10%.
- Reflect the above information in a T account. How much is the Net worth?
- Calculate the required reserve and the excess reserve if any,
- Conduct a gap analysis for the bank, and show what will happen to bank incomeif interest rates rise by 5%?
- What would happen if the interest rates fall by 5%?
- What actions should the bank manager take if interest rates are expected to fall?
Question 3:
The following is City Bank T account
|
AssetsLiabilities and Capital |
|
Rate sensitive Assets Rate Sensitive Liabilities |
|
$100$75 |
- Assuming a decrease of 5% in interest rates (from 10% to 5%) for both assets and liabilities, calculate the change in the market value of the net worth as a percentage of total assets. Assume average duration of 4 years for the rate sensitive assets, and average duration of 2 years for the rate sensitive liabilities.
- What if interest rates increased by 3% (from 10% to 13%).
- What strategy should the Bank Manager follow to alleviate the risk of interest rates increase?
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