1. Why might a bank be willing to borrow funds from the Bank of Canada at a higher rate than it can...

Question

1. Why might a bank be willing to borrow funds from the Bank of Canada at a higher rate than it can borrow from other banks?
2. Rank the following bank assets from most to least  liquid:
a. Commercial loans
b. Securities
c. Reserves
d. Physical capital
3. Why has the development of overnight loan markets made it more likely that banks will hold fewer reserves?
4. If the bank you own has no excess reserves and a sound customer comes in asking for a loan, should you automatically turn the customer down, explaining that you don t have any excess reserves to lend out? Why or why not? What options are available for you to provide the funds your customer needs?
5. If a bank finds that its ROE is too low because it has  too much bank capital, what can it do to raise its ROE ?

Robert · Accepted Answer

Solution 1
Solution 1
Banks may be willing to borrow funds from other banks at a higher rate than they can borrow from the FED. The reason for this is two-fold. First, the borrowing bank may find it easier with less requirements to borrow from another bank, as long as they can make a profit via their lending. For instance,

1. Why might a bank be willing to borrow funds from the Bank of Canada at a higher rate than it can borrow from other banks? 2. Rank the following bank assets from most to least liquid: a. Commercial...

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