Fifth Bank Has the Following Balance Sheet with Values Stated

question 97

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 is the minimum Tier 1 and Total risk-based capital Fifth Bank needs in order to be considered adequately capitalized under Basel III capital requirements for both on-balance sheet and off-balance sheet items?

• A)$40.71 million; $63.0 million.
• B)$38.91 million; $51.88 million.
• C)$51.88 million; $64.85 million.
• D)$50.40 million; $67.5 million.
• E)$38.91 million; $50.40 million.

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Definitions:

Obtaining Investment

The process of securing funds from investors or financial institutions to start or grow a business.

Mezzanine Financing

A blend of equity and debt financing that gives the lender the right to convert to an equity interest in the company in case of default, typically used in the expansion of established companies.

Least Likely

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