KSU Accounting Banks Management Worksheet

Question: 1.

• How Does the Fed affect the Banking and Financial system through open market operations? Why is OMO the preferred tool for many central banks around the globe? Explain in detail. (Minimum 500 words). (2.5 Marks)
• The following statistics and estimates were compiled by Big Moon Bank regarding a proposed new branch office and the bank itself:

Branch office expected return = 15%

Standard deviation of branch return= 8%

Existing bank’s expected return= 10%

Standard deviation of existing bank’s return= 5%

Branch asset value as a percentage of total bank assets = 16%

Correlation of net cash flows for branch and bank as a whole= +0.48

What will happen to Big Moon’s total expected return and overall risk if the proposed new branch project is adopted? (2.5 Marks)