Sigma Bank Has the Following Balance Sheet in Millions of Dollars

question 74

Multiple Choice

Sigma Bank has the following balance sheet in millions of dollars. Unless mentioned otherwise, all assets are associated with corporate customers (not governments or sovereigns) . Values are in millions of dollars. Refer to table 20-8 for appropriate risk weights $$\begin{array} { | l | r | l | r | } \hline \text { Cash } & \$ 40 & \text { Deposits } & \$ 370 \\\hline \begin{array} { l } \text { Municipal General } \\\text { Obligation Bonds }\end{array} & \$ 60 & & \\\hline \begin{array} { l } \text { Residential Mortgages } \\\text { l-4 family } \\( 80 \% - 90 \% \text { LTV) }\end{array} & \$ 100 & \begin{array} { l } \text { Perpetual Preferred } \\\text { Stock }\end{array} & \$ 20 \\\hline \begin{array} { l } \text { Commercial loans } \\\text { BB + rated }\end{array} & \$ 200 & \text { Equity } & \$ 10 \\\hline \text { Total Assets } & \$ 400 & & \$ 400 \\\hline\end{array}$$ Off balance sheet contingent liabilities (Refer to Table 20-10)
$40 million direct-credit substitute standby letters of credit issued to a U.S. corporation.
$40 million commercial letters of credit issued to a corporation
Off-balance sheet derivatives (Refer to Table 20-11)
$200 million 10-year interest rate swaps
$100 million 2-year forward DM contracts
-What is the minimum required Tier I and Total risk-based capital for the on-balance-sheet assets in order for the DI to be adequately capitalized?

• A)$8 million; $8 million.
• B)$16.87 million; $16.87 million.
• C)$17.22 million; $22.96 million.
• D)$22.96 million; $28.70 million.
• E)$10.8 million; $8 million.

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Definitions:

Experiment

A procedure undertaken to make a discovery, test a hypothesis, or demonstrate a known fact.

Probability

A numerical expression between 0 and 1 that denotes the probability of a certain event happening.

King of Diamonds

A card in a standard deck of playing cards, representing the king from the suit of diamonds.

Well-Shuffled Deck

A state of a deck of cards in which the order of the cards is randomized to such an extent that no discernible patterns exist, ensuring fair play.