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b) Why is the risk-adjusted return on capital (RAROC) an important tool in credit risk management for commercial banks?
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- Distinguish between illiquidity and insolvency for banks and discuss the role of capital in protecting against these problems.Which of the following is defined as the level of capital that allows banks to sustain the potential losses arising from all current risks and to comply with an acceptable solvency level. a. Asset liquidity b. Capital adequacy c. Liquidity position of a bank d. Market liquidity(a) Distinguish between the activities of retail and investment banks and discuss howthis has an impact on their approaches to risk management. (b) Explain liquidity risk and credit risk faced by banks and discuss how banks managethese risks
- What are the liquidity ratios recommended to manage liquidity risk for a commercial bank?Provide 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 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 correct
- How does capital protect a bank from failure? Why are banks currently holding capital well above the minimum regulatory requirement? What are the ways in which a bank can increase its capital ratio?Explain liquidity risk and credit risk faced by banks and discuss how banks managethese risksWhich of the following types of financial risk can be effectively managed by holding a lot of short-term deposits on the balance sheet that are used to finance long-term assets of the business such as mortgage loans/credits to allow the business to make profits? Select one: a. Interest Rate Risk b. Liquidity Risk c. Market Risk d. Foreign Exchange Risk
- Could you give some example that explain thoroughly why capital adequacy management in commercial bank is so important?Briefly explain how banks manage credit risk and interest rate risk.a. What is the nature of an off-balance-sheet activity? How does a bank benefit from such activities? b. Evaluate the importance of bank liquidity risk management. please