Suppose a bank faces a gap of -20 between its interest-sensitive assets and its interest-sensitive liabilities. What would happen to bank profits if interest rates were to fall by one percentage point? You should report your answers in terms of the change in profit per $100 in assets.

Will the additional $400,000 which was deposited in the Second National Bank affect the new loan?

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The commercial banking system has excess reserves of $4,000. Then new loans of $30,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be _%. Your Answer: Answer

What does the term "bank failure" mean? What role does FDIC insurance play? How many banks failures occurred in the United States during the most recent complete calendar year?

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Explain how each of the following helps to stabilize the financial system: deposit insurance, capital requirements

Suppose that the current Federal Reserve federal funds rate is 3.0%. If the Fed were to raise it by .25%, it would bring the rate to 3.25%. Explain how the rate increase will impact the market for borrowed funds and the overall economy.

The author of your textbook defines a bank’s leverage ratio as the value of its assets divided by its capital (or owner’s equity). Explain how a bank with a high leverage ratio runs the risk of a bank run when the market value of the securities it owns falls in value.  (Use numbers in your explanation.) Explain how increases in the real interest rate affect the quantity of real money balanced demanded. (Graphically illustrate) Explain how increases in real income affect the demand for real money balances. (Graphically illustrate.)

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.