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 andthe excess reserve if any,
Conduct a gap analysis for the bank, and show what will happen to bank income if 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?