Q: If a bank manager wants to protect the bank against losses that would be incurred on its portfolio…
A: When there is a rise in the interest rates, the securities prices will decline which result in a…
Q: How can a bank mitigate LIQUIDITY RISK? Hold a large percentage of its liabilities in Core Deposits…
A: The correct answer for the above mentioned question is given in the following steps for your…
Q: Which of the following actions cannot be used by banks to increase reserves? A. Sell Treasury…
A: Reserves are parts of the income of a corporation that have been set aside to improve the financial…
Q: Which of the following is NOT a purpose of valuing financial securities? a. Valuation is used to…
A: The term securities range from stocks and bonds to derivative contracts of various types such as…
Q: How does a bank try to achieve the best possible risk adjusted return on its overall loan portfolio?
A: The possibility of a loss arising from a borrower's inability to repay a loan or meet legally…
Q: efly explain how banks can optimize their position through managing their use of currencies?
A: Step 1 Significant restructuring of the treasury structure and the way companies interact with…
Q: When interest rates fall, the rates that a bank pays on deposits typically decline less than the…
A: When interest rates fall, the rates that a bank pays on deposits typically decline less than the…
Q: We think of banks as being interest rate intermediaries. That is, the borrow cheaply, and then lend…
A: Following are the types of risk faces by banking industry other than interest rate:
Q: The RBA decides to buy bonds and securities from commercial banks on the open market. Other things…
A: When RBA buys bonds in the open market, the money supply in the economy increases, as it buys…
Q: A bank's net interest margin represents the proportion of its investments that are financed with…
A: The difference between interest paid and interest received, adjusted for the entire amount of…
Q: Prove the statement with example "A bank should not sacrifice ether safety or liquidity to earn a…
A: Lending and accepting deposits are the two foremost basic functions as well as the very reason for…
Q: If a bank wants to avoid volatility in its regulatory capital, which investment classification would…
A: Answer: If banks want to volatility in regulatory capital, wanting banking organizations are likely…
Q: If a bank has , rate-sensitive assets than liabilities, then in interest rates will increase bank…
A: Lets understand the meaning of rate sensitive asset and liabilities. Rate sensitive asset and…
Q: Treasury in banking is not just limited to holding and storing of cash rather its purview expands…
A: Many firms require financial services that assist with assets and holdings. Treasury management…
Q: Why would a bank sell a package (portion) of its loans? A) to decrease liquidity B) to increase the…
A: Securitization is a process wherein individual loans, debts, etc., that involve a payment stream…
Q: Distinguish between illiquidity and insolvency for banks and discuss the role of capital in…
A: liquidity is considered as the short-term problem of banks where they are unable to make payments…
Q: Which of the following statements is correct? A. Bitcoins are mainly used as financial…
A: Bitcoin is referred to as the decentralized digital currency, which is without any central bank or…
Q: Think from the borrower (management) and NOT lender (investor) points of view. Which is the less…
A: Analysis of the given options from the borrower points of view: a) Bond financing- Bond financing…
Q: If the deposits/loans ratio is relatively high for a bank, this implies an emphasis on: a.…
A: Deposits /Loans as the name suggest implies the number of deposits financed as loans. If it is…
Q: Why would an investor want to have some sort of credit enhancement included in a securitization? a.…
A: In finance, securitization is the process of conversion of an asset, most commonly the conversion of…
Q: The company's bank won't lend it any more money than it already has, and investment bankers have…
A: The first thought that comes to mind as regards borrowing is the bank, but the companies do not…
Q: o secure the bonds with owned assets in great detial. In what ways does it make the bonds more…
A: A bond is a type of debt instrument certifying the loan taken from the investor. The rate of…
Q: What is reinvestment risk (in the context of interest rate risk)? How does reinvestment risk impact…
A: A bank is a financial institution which is authorized to deposit money and provide loans. Financial…
Q: Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to…
A: A positive gap is a situation where the bank’s rate-sensitive assets exceed the rate-sensitive…
Q: the financial institution do to lower these risks
A: The main risk is that interest rates will rise. Therefore, banks have to pay higher interest rates…
Q: Interest rate risk is of concern to a firm's financial officer, because (Select the best choice…
A: Interest Rate is the cost(k) of debt. It is an amount paid by the borrower to the lender on money…
Q: What are the advantages and disadvantages of using financial leverage? Answer from the banker’s…
A: Financial leverage is a firm’s capability of borrowing so that the funds raised could be used to…
Q: financial intermediaries (institutions)? *
A: Financial Intermediaries: Financial intermediaries act as a middleman between the investors and the…
Q: True/False When nominal interest rates are zero, the central bank can still lower them by printing…
A: Nominal interest rate means the percentage increase in the money paid to the lender for the money…
Q: Financial assets such as mortgages, credit cardreceivables, and auto loan receivables are…
A: Bonds are the highly secured securities for which the bondholders are the creditors of the company.…
Q: If there is no asymmetric information problem from the perspective of lenders and borrowers, is the…
A: Financial market is the place where investors invest their funds in various securities and companies…
“Loans and Advances” is the highest income generating asset where as “Cash” is the most liquid asset, yet banks invest heavily in “Securities”. Justify the
sentence. Explain a Structured Note using an example. As a potential investor would you prefer to invest in a structured note? Why or why not?
Step by step
Solved in 3 steps
- How should a bank structure its liquid assets portfolio to take advantage of falling interest rates ? a. The bank should invest in short-term securities to minimise capital loss b. The bank should invest in long term securities to maximise capital gains. c. The bank should borrow at fixed interest rates d. The bank should issue certificate deposits with fixed interest rates. e. The bank should hold cash to maximise its interest income. Which option is correctProvide an explanation of whether it is advantageous for a bank to classify debt investments as “held to maturity “or “available for sale” if the required return by the market declines? What impact will this have on the bank's balance sheet and net income?How do you think the shape of the yield curve for commercial paper and other money market instruments compares to the yield cure for treasury securities? Explain your own interpretation. Many financial institutions borrow heavily in the money markets using mortgages and montages backed securities as collateral. How do you explain the impact of the credit crisis on deficit and surplus units that participate in the money market? Do you think that the money market should be regulated to ensure proper collateral in the money market? Can you explain how activities in the secondary T-bill market are conducted? How can this kind of activity benefit investors in T-bills? Why might a financial institution sometimes consider T-bills as a potential source of funds?
- Financial assets such as mortgages, credit cardreceivables, and auto loan receivables are oftenbundled up, placed in a bank trust department,and then used as collateral for publicly tradedbonds. Bond prices typically rise when interestrates decline, but bonds backed by mortgagesfrequently fall when rates decline. Why might thishappen?Which of the following statements are true?I. Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds. Even investors who focus on long-term securities tend to hold some money market securities because this enables them to maintain liquidity.II. Financial institutions manage their liquidity by participating in money markets. They may issue moneymarket securities when they experience cash shortages and need to boost liquidity. They can also sell holdings of money market securities to obtain cash.III. The value of a money market security represents the future value of the present cash flows generated by that security. Since money market securities represent debt, their expected cash flows are typically known.IV. The pricing of money market securities changes in response to a shift in the required rate of return by investors. The required rate of return changes in response to…If the deposits/loans ratio is relatively high for a bank, this implies an emphasis on:a. securities to finance loansb. deposit sources of funds to finance loansc. decreasing the quantity of loans outstandingd. high deposit to equity
- What risks might commercial bank operations face by funding long-term loans such as mortgages to borrowers (often at fixed interest rates) with short-term deposits from savers? What steps could the financial institution take to reduce these risks?What are some of the ways that banks can borrow short-term funds when they need "liquidity"?(Select all that apply; three of the answers below are correct.) Reference: Chapters 11 & 12 They can borrow directly from the Securities & Exchange Commission through the "regulatory" market. They can borrow from the Department of Treasury through the "Treasury" window. They can borrow another bank's reserves through the "fed funds" market. The can engage in a "sale & repurchase agreement" (or "repo") by selling some of their securities to another financial insitution and promising to buy them back the next day. They can borrow directly from the Federal Reserve through the "discount window".Are there any advantages to the equity-holders of banks from them engaging in short-term as opposed to long-term borrowing?
- If a bank manager wants to protect the bank against losses that would be incurred on its portfolio of Treasury securities should interest rates rise, he could financial futures. A. sell put B. sell call C. buy put D.buy callWhich statement is incorrect? a. Information and transaction costs related to financial market transactions would be higher if there is no participation of financial intermediaries. b. The common trait of savings banks, commercial banks, credit unions and savings and loan associations is that all of them accept deposits from SSUs and provide credit to DSUs through loans and purchases of securities. c. Finance companies act as a factor by purchasing a firm's receivables at a discount and subsequently processing and collecting the balances of these accounts. d. A lending company operating in the Philippines cannot charge more than 12% annual interest on the loans it grants to borrowers. e. none of the aboveThe company's bank won't lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow the company to borrow. Please provide a detail explanation for each Explain how to secure the bonds with owned assets in great detail. In what ways does it make the bonds more attractive to allow the company to borrow? What is the agreement to subordinate future debt? How does it make the bonds more attractive?
