professional

professional

Lv8

University of Central Florida

2 Followers
0 Following
4 Helped

ANSWERS

Published197

Subjects

History12Law20Management6English20Philosophy1Anthropology9Business17Science10Electrical Engineering1Prealgebra2Sociology7Geography10Nursing1Psychology11Communications4Algebra5Accounting6Biology21Mathematics5Physics7Finance4Economics4Chemistry14
In short, rancidity and oxidation are related concepts but refer to different ...
85.07Ā°C.
a) Copper wire - Element (Copper) b) Copper ore - Heterogeneous mixture c) Cop...
a) Strontium - Sr b) Xenon - Xe c) Oxygen - O d) Zinc - Zn e) Fluorine - F f) ...
a) elementb) heterogeneous mixturec) compoundd) homogeneous mixture
Supply the term that describes each of the following changes of physical state...
1. Gaseous state2. Solid state3. Liquid state
Solid state!
Gaseous state
Answer:The product of the stroke volume times the heart rate is known as the c...
In the reaction 2K (s) + S (g) --> K2S (s), we need to identify the redox h...
Answer: Approximately 185.1 g of NaN3 is required to provide the nitrogen need...
A circle is a two-dimensional shape that is defined as the set of all points i...
No, a rectangle cannot be a rhombus, but a rhombus can be a rectangle.
A rectangle is a shape that looks like a stretched-out square. It has four sid...
I enjoy working with other people, as I believe that collaboration and teamwor...
The correct form to use when referring to more than one patient is "patients."...
A phrase expressing the aim of a group or party is often referred to as a miss...
An open area free of woods and buildings is typically called a clearing.
Reproduction is the process by which an organism produces offspring. It is a f...
The energy to make ATP (adenosine triphosphate) comes from the breakdown of or...
The energy in food ultimately comes from the sun. The sun is the primary sourc...
Climate change refers to long-term changes in the Earth's climate, including t...
The energy for life processes comes from the conversion of chemical energy sto...
Life processes are the essential functions and activities that are necessary f...
The question of whether the chicken or the egg came first is a classic conundr...
Eating a diet that is high in fast food can have negative impacts on both long...
Lifelong learning and brain stimulation are important factors that can contrib...
To determine the most that you would be willing to pay for a share of this sto...
A firm that plans to begin production at the beginning of a new venture will l...
N,N-dimethylpentanamide can be prepared from 1-pentene using the following syn...

Suppose that you are a bank regulator who knows that there are two types of banks under your jurisdiction, high quality (H) and low quality (L), who differ in their ability to screen loan applications for credit-worthy borrowers. Using past data you estimate that roughly 70% of banks are high quality and 30% are low quality. High-quality banks generate a cash flow per loan of 100k with probability .8 and 0 with probability .2. A low-quality bank on the other hand generates a cash flow per loan of 100k with probability .5 and 0 with probability .5.

These banks primarily make small loans to local businesses which creates a social benefit of 4% per dollar lent (i.e. if the bank lends $10 then the social benefit is 4%*$10). When a bank fails though, it generates a social cost of 15% per dollar of losses to the bank's creditors (i.e. if creditors lose $10 then the social cost is 15%*$10).

As a regulator you must choose a ā€œcapital requirementā€, dictating how much the banks can borrow to make loans, in order to maximize the expected social value. Each loan costs $50k and generates the returns described above. Additionally, the banks start with $50k of their own money to invest. You, as the regulator, are debating whether to let the banks borrow money to issue 0, 1, or 2 additional loans. We assume the banks find it optimal to issue as many loans as possible but can only raise additional funds by borrowing. This means banks will always make at least 1 loan with their initial $50k and will make an additional 0, 1, or 2 loans with borrowed money depending on how much the regulator allows them to borrow. All loans generate the same cash flow (e.g. if the H-type makes 3 loans then with prob .8 each loan generates a cash flow of 100k and with .2 each loan generates a cash flow of 0. Similarly, if the L-type makes 3 loans then each loan generates a cash flow of 100k with prob .5 and each loan generates a cash flow of 0 with probability .5).

Ā 

Question:

Assume the regulator knows which banks are H-type and which are L-type. What is the expected social value (i.e. social benefit minus expected social cost) if the regulator allows the H-type bank to borrow 0, $50k, or $100k to make additional loans? What bout the L-type bank? How much will the regulator optimally allow the H-type and L-type banks to borrow? (remember all bank always makes at least 1 loan, so they will either make 1, 2, or 3 loans depending on whether the regulator allows them to borrow 0, $50k, or $100k. Also note that the social cost only applies to borrowed money lost in default, not the bankā€™s initial $50k, and the social benefit applies to money lent, not the realized cashflow).

To determine the expected social value for the H-type bank, we need to conside...
In mathematics, the concept of infinity is used to represent an unbounded or u...
Environmental monitoring is the continuous process of collecting, measuring, a...
Environmental studies is an interdisciplinary field that focuses on understand...
Increasing funding for mental health resources is a policy or program that aim...
Colonization refers to the process of a country or group of people establishin...
Jazz is a musical genre that originated in the United States in the late 19th ...
New England was a region of British North America that included the colonies o...
Greece and the Assyrian civilization have a number of characteristics in commo...

Weekly leaderboard

Start filling in the gaps now
Log in