Fifth Bank Has the Following Balance Sheet with Values Stated

question 51

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
-What are, respectively, the credit equivalent value of the letters of credit, interest rate swaps, and FX contracts?

• A)$10.0 million; $3.5 million; $5.0 million.
• B)$50.0 million; $300 million; $50.0 million.
• C)$5.0 million; $1.5 million; $5.0 million.
• D)$10.0 million; $1.5 million; $5.0 million.
• E)$5.0 million; $3.5 million; $5.0 million.

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Definitions:

Insurance

A means of protection from financial loss, characterized by the transfer of risk from one entity to another in exchange for payment.

Consumer

An individual or group who purchases goods and services for personal use.

Expected Utility

A theory in economics that calculates the anticipated utility resulting from different outcomes in risky or uncertain situations.

Utility

(Of a consumer) a measure of the satisfaction derived from consumption of goods and services.