Fifth Bank Has the Following Balance Sheet with Values Stated

question 125

Multiple Choice

Fifth Bank has the following balance sheet with values stated in millions of dollars. All assets are associated with corporate customers (not governments or sovereigns) . Refer to Table 20-8 for associated risk weights. $$\begin{array} { | l | r | l | r | } \hline \text { Cash } & \$ 80 & \text { Deposits } & \$ 550 \\\hline \begin{array} { l } \text { Municipal General } \\\text { Obligation Bonds }\end{array} & \$ 100 & & \\\hline \begin{array} { l } \text { Residential Mortgages 1-4 family } \\\text { (LTV 60\% - 80\%) }\end{array} & \$ 220 & \text { Long-Term Debt } & \$ 290 \\\hline \text { Commercial loans } & \$ 500 & \text { Equity } & \$ 60 \\\hline \text { Total Assets } & \$ 900 & & \$ 900 \\\hline\end{array}$$ In addition, Fifth Bank has off-balance sheet items as follows: (Refer to Tables 20-10 and 20-11)
$50 million in commercial letters of credit (LCs) ,
$300 million in 3-year interest rate swaps that are in-the-money by $2 million
$50 million in 4-year forward FX contracts that are out-of-the money by $2 million
-Is Fifth Bank currently over or under capitalized for on-balance-sheet assets in order to be considered well capitalized according to Basel III?

• A)Overcapitalized for both Tier I and Total capital standards.
• B)Overcapitalized for Tier I standard; Undercapitalized for Total standard.
• C)Undercapitalized for Tier I standard; Overcapitalized for Total standard.
• D)Undercapitalized for both Tier I and Total capital standards.
• E)Unable to determine.

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Definitions:

Payment

A transfer of money or goods from one party to another in exchange for goods, services, or to fulfill a legal obligation.

Compound Annual Return

The rate at which an investment grows annually over a specified period, taking into account the effect of compounding.

Diversified Canadian Equity Funds

Investment funds that spread their holdings across a wide range of Canadian stocks to mitigate risk and maximize returns.

Initial Investment

The initial amount of money put into a project, investment, business venture, or financial asset.