A bank has two investment options tochose from for short term investment:Option A: A money market securityissued by a multinational corporationwith a face value of $2000 with 120days to maturity to be traded for$1850.Option B: A 60-day tax exemptedgovernment bill with a face value of$2000 to be traded for $1950.The corporate tax rate on bankearnings is 40%.Which security would you chose based on theafter tax YTM return? Justify by showing yourcalculations appropriately.

Option A:- Face Value = $2,000 Current price = $1,850 Time Period = 120 Days Option B:- Face Value…

Answered: A bank has two investment options to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 3P

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Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $25,950,000, with the promise to buy them back at a price of $26,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturit
Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $25,950,000, with the promise to buy them back at a price of $26,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) Yield on the repo a. % b. Yield on the repo
Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $31,950,000, with the promise to buy them back at a price of $32,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) a. b. X Answer is complete but not entirely correct. Yield on the repo Yield on the repo 1.02857 % 0.34286 %
Suppose that the assets of a bank consist of $200 million of retail loans (not mortgages). The PD is 1% and the LGD is 70%. What is the risk-weighted assets under the Basel II IRB approach? What are the Tier 1 and Tier 2 capital requirements?
A bank is able to issue a $500,000 worth of a 90-day commercial paper with a 2% discount yield and an equivalent size and risk 90-day certificate of deposit with a 3% single payment yield today. Prices of securities are quoted assuming no arbitrage, and hence the present value of all future cash flows for the securities are equivalent to their corresponding prices. The bank is considering the issuance of either the commercial paper or the certificate of deposit to replicate the effective-annual return (interest rate) of a zero-coupon bond currently included in the bank's portfolio. This bond is currently quoted in the market at $910.55 and matures in three years. The bond has the standard par value (face value) of $1,000 and a yield to maturity of 3.173%. Which security should the bank issue to replicate the effective-annual return of the zero-coupon bond? Issue commercial paper o Issue certificate of deposit
Suppose that the assets of a bank consist of $100 million of loans of BBB-rated corporations. The PD for the corporations is estimated as 1%. The average maturity is five years and the LGD is 60%. What is the total risk-weighted assets for credit risk under the Basel II advanced IRB approach? Question 5Answer a. $178.1 million b. $13.2 million c. $165.4 million d. $100 million
Below is the balance sheet for Longhorn Bank, a private bank. As a commercial bank, Longhorn Bank faces a 10% reserve requirement. This scenario applies to the questions 34 - 38. ASSETS LIABILITIES Customer Reserves deposits $1,000,000 $150,000 Loans to households and biz $850,000
Suppose a bank enters a repurchase agreement in which it agrees to sell Treasury securities to a correspondent bank at a price of $9999827 with the promise to buy them back at a price of $10000090. Calculate the yield on the repo if it has a 5-day maturity.
Suppose a bank enters a repurchase agreerment in which it agrees to sell Treasury securities to a correspondent bank at a price of $9.99,838 with the promise to buy them back at a price of $10.000,073. Calculate the yield on the repo if it has a 6-day maturity. (write your answer in percentage and round it to 2 decimal places)
Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. Assuming a required capital ratio of 8%, what is the capital amount the FI needs to hold against these exposures? ANSWER MUST BE 7.52 million
Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. What is the total capital amount the FI needs to hold against these exposures? (Assume data obtained from 2020 FI records) Select one: A. $5.04 million B. $9.87 million C. $8.4 million D. $7.52 million
Suppose Bank One offers a risk-free interest rate of 5.0% on both savings and loans, and Bank Enn offers a risk-free interest rate of 5.5% on both savings and loans. a. What arbitrage opportunity is available? b. Which bank would experience a surge in demand for loans? Which bank would receive a surge in deposits? c. What would you expect to happen to the interest rates the two banks are offering? a. What arbitrage opportunity is available? (Select the best choice below.) O A. Take a loan from Bank One at 5.0% and save the money in Bank Enn at 5.5%. O B. Take a loan from Bank One at 5.5% and save the money in Bank One at 5.0%. O C. Take a loan from Bank Enn at 5.5% and save the money in Bank One at 5.0%. O D. Save at both banks. b. Which bank would experience a surge in demand for loans? Which bank would receive a surge in deposits? (Select the best choice below.) O A. Bank One would experience a surge in the demand for loans, as will Bank Enn. O B. Bank One would experience a surge in…

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