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1. Explain how capital reduces banking risks. Discuss the importance of cash flows and economic (market) value rather than accounting value.
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- 2. Which of the following functions does not require financial markets? transporting of cash across time provision of pricing information risk reduction by investment in diversified portfolios provision of liquidityExplain how EBITDA differs from Free Cash Flows (FCF) and discuss the types of businesses for which this differences will be especially small or large?How can changes in working capital items, such as accounts receivable and inventory, affect the cash flow statement, and how can these changes be interpreted by investors and creditors?
- The following are goals‘andobjectives in working-capitalmanagement. Which is the LEASTACCURATE? a. Payables management includes the analysis of the business's use of trade payables and short-term non-trade payables but not long-term non-trade payables.b. Availability of money marketable securities support the cash management function by providing a return on excess cash.c. Receivable management involves setting the credit term but not the implementation of how receivables are collected.d. Inventory management allows the entity to determine the best level of this asset while balancing the risk of over- and under- stocking.What are the differences between raising capital from a financial institution and raisingfinances directly from the market?Briefly explain the role of the capital market and the money market in the financial system.
- b) Why is the risk-adjusted return on capital (RAROC) an important tool in credit risk management for commercial banks?1. How are the capital market line and security market line similar? How are they different? 2. Explain the difference between financial risk and business risk? What factors influence a firm’s business and financial risk?What contrasts are there between what is shown in cash flow statements and the need for firms to borrow at high rates and firms' income statements?
- How does a firm’s ability to borrow affect its optimal holdings of cash and securities?Which of the following would increase cash flow for a firm? a. A purchase of fixed assets b. Cash sales c. Purchase of markatable securities d. Credit salesBeyond profitability, what indicators are important to investors and creditors? What can be learned from the statement of cash flows?