ECO 3307 Saint Mary’s University Money and Banking Questions

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Money and Banking Assignment
Assignment 2
ECONOMICS 3307: MONEY AND BANKING
Fall 2021
Assigned: November 1, 2021
Due: November 15, 2021
Answer the following 3 questions:
1.
Term Structure of Interest Rates: Go to http://www.yieldcurve.com
Press yield curve.
This web site allows you to plot the yield curves for UK Gilts and US
Treasuries for different periods.
a. List the three facts about the term structure of interest rates
b. What is your prediction about the short term of the interest rates in the
long run for both UK gilts and US treasury as shown below?
c. In the website, select a period, as circled above, and print a plot of an
inverted yield curve. I suggest June 2006. (If the graph didn’t show up, try to switch to
another browser till you get it). Comment generally on the power of prediction of
the theories of term structure of interest rates in predicting the
2008/2009 financial crisis.
~1~
Money and Banking Assignment
2.
The following information belongs to Banks A & B:
Bank A:
Reserves
Deposits
Loans
Bank Capital
Securities
10
100
90
10
10
Bank B:
Reserves
Deposits
Bank Capital
Loans
Securities
14
110
4
90
10
a. List the above items in a T account
b. Assume the desired reserve is 10%. Calculate the desired and the
excess reserve, if any, for both banks.
c. A client withdrew 10 million from Bank B. Show the changes in the T
account of Bank B. If there is a reserve deficiency what would the bank
do?
d. Suppose that each Bank made a $5 million loan to Power Investments
Incorporated. Power Investments uses its loans to undertake a risky
project, goes bankrupt and defaults on its loans. How will this affect
each of the two banks? Show your work
e. What types of government regulations might have prevented these
outcomes in “d”?
f. What types of actions by the banks might have prevented these
outcomes in “d”?
~2~
Money and Banking Assignment
3.
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.
a. Go to OSFI website – under Financial Institutions – select Financial Data
– select Banks. Populate the most recent consolidated balance sheet of
a bank of your choice, and attach a printout.
b. What is the total amount of loans held by the bank? Use “total
currency”.
c. What is this number as a percentage of total bank assets?
d. Calculate the Equity Multiplier.
e. Would you buy the share of this bank as an investment? Explain
~3~

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Explanation & Answer:
3 Questions

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Interest rates

money and banking

US Treasury

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