Q.1: Blue Skies Bank of Florida issues a three-month (90-day) negotiable CD in the amount of $20 million to ABC Insurance Company at a negotiated annual interest rate of 2.75 percent (360-day basis). Calculate the value of this CD account on the day it matures, and the amount of interest income ABC will earn. What interest return will ABC Insurance earn in a 365-day year? [2.5 Marks]
Q2. What are the advantages of borrowing from the Federal Reserve banks or other central banks? Are there any disadvantages? What is the difference between primary, secondary, and seasonal credit? What is a Lombard rate and why might such a rate be useful in achieving monetary policy goals? [2.5 Marks]