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(a) Created an unrealistic picture of the financial health of some banks.
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(b) Required banks to recognize in their balance sheet decrease in value of assets as their price declined in the market, instead of waiting until the asset was sold.
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(c) Caused the net worth of some banks to decline significantly and making it impossible for the banks to make loans.
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(d) All the above.
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(e) Only (b) and (c) are true.
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- 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. HedgingIf a bank's credit ratings decrease, How does this affect borrowers, lenders, and financial institutions? What are the implications of this downgrade to the health of the financial system?As a result of the COVID-19 crisis, company A has decided to sell its receivables to a bank in exchange for cash. What would be the effect of this financial decision on the company's current ratio, quick ratio and cash ratio?
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- There are claims that the central bank caused the recession, and due to them, production has dropped below the optimum level, and inflation has gone up. What would you say to defend the central bank? Explain in detail.2. If a bank wants to avoid volatility in its regulatory capital, which investment classification would be the most desirable, and which investment classification would be the least desirable? Does your answer differ depending on whether the bank is large or small? In other words, do large and small banks differ on how they can categorize unrealized gains/losses on AFS debt?Match the correct type of bank risk with the appropriate associated statement. 1.The possibility that a borrower could make late, reduced, or no payments on their loans. 2.Bank management may make poor strategic decisions that result in lower profits for the bank. 3.Hackers could break into bank customer accounts. 4.Inability to access capital markets and higher borrowing costs could hurt the bank's ability for funding opportunities. 5.Changes in the yield curve could increase short-term rates and/or decrease long-term rates, resulting in a lower net interest margin for the bank. 6.General economic conditions can affect banks in the U.S. Liquidity Risk 7.Differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities could put the bank's earnings at risk. Credit Risk Business Operations Risk Market risk Interstate Rate Risk Liquidity Risk
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