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pg. 1
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?

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