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An increase in interest rate always lowers the net interest income (NII) of a bank. Is this statement true or false? Explain.
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- How would a rise in interest rate affect a bank’s profit?Judy runs a bank and believes interest rates will increase in the future. Explain what size interest rate gap the bank should have and why.If the value of a bank's loan declines, what is the corresponding reduction on the other side of its balance sheet? Equity is reduced by the amount of the decline in the value of the loan. Borrowing from other banks are reduced by the amount of the decline in the value of the loan. Deposits are reduced by the amount of the decline in the value of the loan. Cash is reduced by the amount of the decline in the value of the loan.
- Your bank has the following balance sheet. Assets: Rate-sensitive $200 million Fixed-rate 100 million Liabilities: Rate-sensitive $150 million Fixed-rate 150 million (a) If the interest rates in the economy go down by 3%, will profits increase or decrease? Show your work and calculate the numerical value of the change of profits (b) Briefly explain why profits increase/decrease according to your answer in part (a) (c) Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements? Give the answer of all.Your friend Sarah borrows money from her bank to buy a car. Explain to her the transactions in which the bank sets up the loan, and why the loan involves an increase in the money supply.Using the notions of ex ante and ex post interest rates, explain how could a bank be expecting a huge return on its investments and end up with very small real returns?
- "Banks make a profit by paying depositors a high rate to attract funds and making loans at a low rate to encourage borrowing." Is the previous statement correct or not?Bankers make loans in the Nominal Interest Rate, so why do bankers care so much about the Real Interest Rate?Do the financial institutions usually quote the interest rate on an annual basis?
- what is a centeral bankWhy did the Bank of England in 2021 set bank rates to be maintained at 0.1%?What is the role of banks as financial intermediaries? a) Savers go directly to the banks for funds. b) Banks issue bonds to finance their daily operations. c) Borrowers go directly to savers for funds. d) Savers deposit their funds into banks; banks extend loans to borrowers. e) Borrowers deposit their funds into banks; banks extend loans to savers. What is the role of banks as financial intermediaries? a) Savers go directly to the banks for funds. b) Banks issue bonds to finance their daily operations. c) Borrowers go directly to savers for funds. d) Savers deposit their funds into banks; banks extend loans to borrowers. e) Borrowers deposit their funds into banks; banks extend loans to savers..