Financial Markets and Institutions (2-downloads)

5. Calculate the risk-weighted assets and risk-weighted

capital ratio after Oldhat’s first day.

6. The next day, terrible news hits the mortgage mar-

kets, and mortgage rates jump to 13%. What is the

market value of Oldhat’s mortgages? What is Oldhat’s

“market value” capital ratio?

7. Bank regulators force Oldhat to sell its mortgages to rec-

ognize the fair market value. What is the accounting

transaction? How does this affect its capital position?

8. Congress allowed Oldhat to amortize the loss over the

remaining life of the mortgage. If this technique was

used in the sale, how would the transaction have been

recorded? What would be the annual adjustment?

What does Oldhat’s balance sheet look like? What is

the capital ratio?

9. Oldhat decides to invest the $77 million in excess

reserves in commercial loans. What will be the impact

on its capital ratio? Its risk-weighted capital ratio?

10. The bad news about the mortgages is featured in the

local newspaper, causing a minor bank run. $6 million

in deposits is withdrawn. Examine the bank’s condi-

tion after this occurs.

11. Oldhat borrows $5.5 million in the overnight federal

funds market to meet its resources requirement.

What is the new balance sheet for Oldhat? How well-

capitalized is the bank?

Calculate the bank’s risk-weighted assets.

3. Consider a bank with the following balance sheet:

The bank commits to a loan agreement for $10 million

to a commercial customer. Calculate the bank’s cap-

ital ratio before and after the agreement. Calculate

the bank’s risk-weighted assets before and after the

agreement.

Problems 4 through 11 relate to a sequence of transactions

at Oldhat Financial.