Deposit Insurance a. depositor indifference generates a moral hazard problem that encourages banks to engage in risky activities b. exists only in the USA, not in the oer countries. c. It is a privately owned insurance company. d. successfully helped US to overcome the problems in 1980's S&L crisis and 2008 Financial Crisis.
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- 1) What would happen to the standard of living in the United States if people lost faith in our financial markets? Why? 2) How does a profitable capital market help reduce the prices of goods and services? 3) The SEC attempts to protect investors who purchase newly issued securities by requiring issuers to provide relevant financial information to potential investors. The SEC does not provide an opinion on the actual value of the securities.Therefore, a reckless investor could pay too much for some shares and consequently lose a lot. Do you think the SEC should, as part of each new offering of stocks or bonds, give investors an opinion on the appropriate value of the securities being offered? ExplainWhat is a financial market? What is the role of a financial market? 3-2 What would happen to the standard of living in the United States if people lost faith in our financial markets? Why? 3-3 How does a cost-efficient capital market help to reduce the prices of goods and services? 3-4 The SEC attempts to protect investors who are purchasing newly issued securities by requiring issuers to provide relevant financial information to prospective investors. The SEC does not provide an opinion about the real value of the securities. Hence, an unwise investor might pay too much for some stocks and consequently lose heavily. Do you think the SEC should, as a part of every new stock or bond offering, render an opinion to investors on the proper value of the securities being offered? Explain.Washington Mutual was a US Bank which went bankrupt at the end of 2008 due to a number of risk management issues. Read the case noted in the link below and answer the following questions: A. Explain credit risk from an individual and a loan portfolio management perspective and discuss how they relate to this case. B. Demonstrate how the credit risk management issue(s) in the Washington Mutual case can be resolved through the application of a risk management model. C. Discuss how this model can mitigate future credit risk issues for Washington Mutual.
- Washington Mutual, was a US bank which went bankrupt at the end of 2008 due to a number of risk management issues. Read the case noted in the link below and answer the following questions: https://www.thebalancemoney.com/washington-mutual-how-wamu-went-bankrupt-3305620 A. Develop a risk management programme appropriate for this case (see attached risk management template) (20 marks) B. Explain how compliance to this risk management programme can prevent the credit risk management issue(s) experienced by Washington Mutual. (10 marks) C. Discuss the importance of an internal risk assessment and auditing process in relation to this case (10 marks).Moral hazard caused by Deposit Insurance Schemes refers to: Question 2Answer a. The placing of funds from immoral activities into the banking system. b. The loss exposure faced by an insurer when the provision of insurance encourages the insured to take less risks. c. The loss exposure faced by an insurer when the provision of insurance encourages the insured to take more risks. d. The excess profits earned by banks from insured deposits.Washington Mutual, was a US bank which went bankrupt at the end of 2008 due to a number of risk management issues. A. Develop a risk management programme appropriate for this case (see attached risk management template) B. Explain how compliance to this risk management programme can prevent the credit risk management issue(s) experienced by Washington Mutual. C. Discuss the importance of an internal risk assessment and auditing process in relation to this case
- Which statement is NOT true of Asset-backed securities and Mortgage-backed securities in the Philippines? * Asset-backed securities (ABS) are certificates issued by a Special Purpose Trust (SPT) representing undivided ownership interest in the asset pool. ABS are eligible as collaterals for loans extended by a bank which originated/sold the underlying assets of such ABS. ABS and MBS benefit sellers because they can be removed from the balance sheet, allowing sellers to acquire additional funding. Investors in the Philippines are wary on the reliability of MBS specifically those backed by assets of low income households and those originated by publicly controlled finance institutions. Mortgage-backed securities (MBS) are formed by pooling together mortgages.Which of the following statements is false? A. Moral hazard is the lack of incentive to guard against risk where one is protected from its consequences. B. Information about a bank’s activities and financial performance is available in the bank’s financial statements. C. As long as everyone continues to accept the paper bills in exchange, they will have value and serve as currency. D. To an economist, money is the stock of assets that can be readily used to make transactions.A commercial bank in Barbados faces serious liquidity problems; however, they have an asset that has the required value to meet their debt obligations. However, due to poor economic conditions, they may not get a buyer in time to purchase such an asset at their preferred price, so they may end up losing money for selling that asset lower than their preferred price, or if they choose not to sell the asset, they will not be able to meet their financial obligation. Which of the following strategy is best suited to manage the bank’s liquidity risk? Select one: a. Interest rate swaps b. Stress Tests c. Diversifying d. Hedging
- The following is true of deposit insurance, except a Depositor no longer has incentives to monitor the activities of the bank b Moral hazard dissuades the bank manager from taking risky projects c In theory, regulators have replaced depositors in the monitoring of banks d Moral hazard encourages the bank manager to take on risky projectsWashington Mutual, was a US bank which went bankrupt at the end of 2008 due to a number of risk management issues. Read the case noted in the link below and answer the following questions: A. Develop a risk management programme appropriate for this case B. Explain how compliance to this risk management programme can prevent the credit risk management issue(s) experienced by Washington Mutual. C. Discuss the importance of an internal risk assessment and auditing process in relation to this case.The central bank intervened heavily in the credit crisis. Explain whether you believe the central bank’s intervention improved conditions in financial markets or made conditions worse.