Critically analyze concepts behind MBSs and how risk was diversified to secure lending. Analyze what exposure banking institutions had to the subprime mortgage crisis and how MBSs contributed to this exposure
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Critically analyze concepts behind MBSs and how risk was diversified to secure lending. Analyze what exposure banking institutions had to the subprime mortgage crisis and how MBSs contributed to this exposure
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- Analyse what exposure banking institutions had to the subprime mortgage crisis and how MBSs contributed to this exposureWhat 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?Discuss in detail about the Loan securitization as a tool for managing risks by banks. Discuss about the parties involved in securitization process and the benefits of the securitization.
- Define credit risk and its implications for banks and other financial institutions as well as ways on how to prevent them.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?
- (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 risksMethods/instruments that banks use to hedge the risks pertaining loansDefine the Credit Risk and include in your discussion examples of the Credit Risk and why Financial Institutions are particularly susceptible to this Risk. Discuss ways to measure, manage and mitigate the Credit Risk.