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Question;1. Determine the size of the M1 money supply using the followinginformation.Currency plus traveler?s checks \$25 millionNegotiable CDs \$10 millionDemand deposits \$13 millionOther checkable deposits \$12 million2. Following are components of the M1 money supply at the end oflast year. What will be the size of the M1 money supply at the end ofnext year if currency grows by 10 percent, demand deposits grow by5 percent, other checkable deposits grow by 8 percent, and theamount of traveler?s checks stays the same?Currency \$700 billionDemand deposits \$300 billionOther checkable deposits \$300 billionTraveler?s checks \$10 billion3. Assume that a country estimates its M1 money supply at \$20million. A broader measure of the money supply, M2, is \$50 million.The country?s gross domestic product is \$100 million. Production orreal output for the country is 500,000 units or products.a. Determine the velocity of money based on the M1 moneysupply.b. Determine the velocity of money based on the M2 moneysupply.c. Determine the average price for the real output.4. The One Product economy, which produces and sells onlypersonal computers (PCs), expects that it can sell 500 more, or 12,500PCs, next year. Nominal GDP was \$20 million this year, and themoney supply was \$7 million. The central bank for the One Producteconomy plans to increase the money supply by 10 percent next year.a. What was the average selling price for the personal computersthis year?b. What is the expected average selling price next year forpersonal computers if the velocity of money remains at thisyear?s turnover rate? What percentage change in price level isexpected to occur?c. If the objective is to keep the price level the same next year(i.e., no inflation), what percentage increase in the moneysupply should the central bank plan for?d. How would your answer in (c) change if the velocity of moneyis expected to be three times next year? What is it now?5. 1. The following three one-year ?discount? loans are available toyou:Loan A: \$120,000 at a 7 percent discount rateLoan B: \$110,000 at a 6 percent discount rateLoan C: \$130,000 at a 6.5 percent discount ratea. Determine the dollar amount of interest you would pay oneach loan and indicate the amount of net proceeds each loanwould provide. Which loan would provide you with the mostupfront money when the loan takes place?b. Calculate the percent interest rate or effective cost of eachloan. Which one has the lowest cost?Following are selected balance sheet accounts for Third State Bank:vault cash \$2 million, U.S. government securities \$5 million,demand deposits \$13 million, nontransactional accounts \$20million, cash items in process of collection \$4 million, loans to individuals\$7 million, loans secured by real estate \$9 million, federalfunds purchased \$4 million, and bank premises \$11 million.a. From these accounts, select only the asset accounts andcalculate the bank?s total assets.b. Calculate the total liabilities for Third State Bank.c. Based on the totals for assets and liabilities, determine theamount in the owners? capital account.10. Let?s assume that you have been asked to calculate risk-basedcapital ratios for a bank with the following accounts:Cash \$5 millionGovernment securities \$7 millionMortgage loans \$30 millionOther loans \$50 millionFixed assets \$10 millionIntangible assets \$4 millionLoan-loss reserves \$5 millionOwners? equity \$5 millionTrust-preferred securities \$3 millionCash assets and government securities are not considered risky.Loans secured by real estate have a 50 percent weighting factor.All other loans have a 100 percent weighting factor in terms ofriskiness.a. Calculate the equity capital ratio.b. Calculate the Tier 1 Ratio using risk-adjusted assets.c. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio usingrisk-adjusted assets11. Challenge Problem This problem focuses on bank capitalmanagement and various capital ratio measures. Following arerecent balance sheet accounts for Prime First National Bank.Cash assets \$ 17 million Demand deposits \$50 millionLoans secured by Time & savingsreal estate 40 deposits 66Commercial loans 45 Federal fundspurchased 15Government Trust-preferredsecurities owned 16 securities 2Goodwill 5Bank fixed assets 15 Owners? capital 5Total assets \$138 million Total liabilities \$138 millionand owners?capitalAll amounts are in millions of dollars.Note: The bank has loan-loss reserves of \$10 million. The real estateand commercial loans shown on the balance sheet are net of theloan-loss reserves.a. Calculate the equity capital ratio. How could the bank increaseits equity capital ratio?b. Risk-adjusted assets are estimated using the following weightingsprocess: cash and government securities.00, real estateloans.50, commercial and other loans 1.00.Calculate the risk-adjusted assets amount for the bank.c. Calculate the Tier 1 Ratio based on the information providedand the risk-adjusted assets estimate from Part b.d. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio based onthe information provided and the risk-adjusted assets estimatefrom Part b.e. What actions could the bank management team take toimprove the bank?s Tier 1 and Total Capital ratios?

Paper#50881 | Written in 18-Jul-2015

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