2) ABC Bank has the following balance sheet: $340 Liabilities and Equity Overnight repos Subordinated...
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2) ABC Bank has the following balance sheet: $340 Liabilities and Equity Overnight repos Subordinated debt 7-year fixed rate (8.55%) 300 Assets Cash $20 1-month T-bills (7.05%) 150 3-month T-bills (7.25%) 150 2-year T-notes (7.50%) 100 8-year T-notes (8.96%) 200 5-year munis (floating rate) (8.20% reset every 6 months) 50 Total assets $670 Equity Total liabilities and equity 30 $670 Required (i) Assuming a 3-month planning period, calculate the repricing gap and the impact on net interest income if interest rates on RSAs increase 50 basis points and on RSLs increase 60 basis points (ii) Comment on the possible effect of a central bank's policy of setting negative nominal interest rates on the bank balance sheet
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