Our textbook claims that one of the key services banks provide is maturity intermediation: what exactly does this mean? (Choose an answer from the list below; only one is correct.) Reference: Chapter 11 and/or Chapter 1 Banks borrow money from their younger customers and lend it to their older customers. Banks gather small deposits and use them to make large investments, allowing small investors to collectively buy large assets. Banks are funded with deposits that they promise to return on demand but use them to make long-term loans, which creates a mismatch in the maturities of their assets & liabilities.

Our textbook claims that one of the key services banks provide is maturity intermediation: what exactly does this mean? (Choose an answer from the list below; only one is correct.) Reference: Chapter 11 and/or Chapter 1 Banks borrow money from their younger customers and lend it to their older customers. Banks gather small deposits and use them to make large investments, allowing small investors to collectively buy large assets. Banks are funded with deposits that they promise to return on demand but use them to make long-term loans, which creates a mismatch in the maturities of their assets & liabilities.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 21P

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Similar questions

Which of the following would increase a bank’s Net Interest Margin, assuming all else stays the same? Choose Two an increase in the interest rate on its loans companies paying off some of their loans and the bank using the funds to purchase Treasury bonds customers switching a portion of their time deposits to demand deposits the bank issues additional equity and keeps the funds in cash an increase in the federal funds rate assuming the bank borrows more in the federal funds market than it lends
Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans ) for a bank or othe r financia l services company.Explain why you would be willing to pay more or less for a given loan if: a. The borrower has been late on a number of loan payments b. Interest rates in the economy as a whole have risen since the bank made the loan c. The borrower is a firm that has just declared a high level of profits d. Interest rates in the economy as a whole have fallen since the bank made the loan
As a bank manager, you conclude that the bank has a capital shortfall and should decrease the equity multiplier (i.e., increase the capital ratio) to prevent bank failure. Which of the following is one of things you can do to manage capital adequacy of the bank? a.Acquiring more reserves through borrowing from fed funds loansb.Selling the bank's holding of mortgage-backed securities and using the proceeds to decrease liabilitiesc.Repurchasing shares of the bankd.Increasing dividend payout ratio to reduce retained earnings.
One example of financial intermediation is the selling of mortgages by banks to a third party. If you borrow money from the Bank of America to buy a house, the bank immediately sells your mortgage to a third party like Fannie Mae. This transaction gives Bank of America the cash to make another mortgage. Fannie then holds your loan along with millions of others they have bought, and they use the loans as assets to serve as collateral, so they can borrow money in the financial markets to buy more loans from Bank of America and other lenders. What is the impact of all this activity on the cost and availability of mortgages? What if any pitfalls do you see in the process? On balance, is it good or bad for society? Why?
What are bank assets used for? Bank liabilities are the sources of bank ________? Bank capital is the contribution of the bank's owners; it acts as a cushion against what? Banks make a profit for their owners. Measures of a bank's profitability include what four things? Banks' off-balance-sheet activities have become increasingly important in recent years. What are these two things? Banks face several types of risk in day-to-day business. List them:
Banks improves the liquidity of the bank by a. Purchasing more assets of the bank b. Increasing the profit rates on saving accounts c. Generating additional income from investment d. By reducing the interest rates on loan
Minimum capital requirement is a popular tool for bank regulation around the world. Some commented argue for differential capital requirements with the size and the systemic importance of financial institutions as the key discriminating factor. What are the basic arguments for increasing capital requirements at large commercial banks? In what ways will depositors, stockholders, and society in general benefit? How might each group be disadvantaged? As commercial banks enter new lines of business such as brokerage, how much additional capital should be required? Should these new lines of business be insured under a depository insurance scheme? Why or why not? Give examples from today's financial marketplace.
Suppose that, as a result of increased use of electronic payments, banks no longer need to hold as much vault cash. Banks decide to reduce their vault cash holdings by $250million. a) Show the effects this would have on the balance sheets of commercial banks and the central bank. b) If, at the same time, depositors decide to reduce their cash holdings by $50million by depositing that amount with their banks, show the combined effect of these decisions on the balance sheets of commercial banks.
What are the basic arguments for increasing capital requirements at large commercial banks? In what ways will depositors, stockholders, and society in general benefit? How might each group be disadvantaged? As commercial banks enter new lines of business such as brokerage, how much additional capital should be required? Should these new lines of business be insured by the FDIC? Why or why not? Give examples from today’s financial marketplace.
Banks are important to the study of money and the economy because they provide a channel for linking those who want to save with those who want to invest. have been a source of financial innovation that is expanding the alternatives available to those wanting to invest their money. are the only financial institution to play a role in determining the quantity of money in the economy. do all of the above. do only A and B of the above.
Which statement is incorrect? Information and transaction costs related to financial market transactions would be higher if there is no participation of financial intermediaries. 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. 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. A lending company operating in the Philippines cannot charge more than 12% annual interest on the loans it grants to borrowers. none of the above
Assume that you are the senior manager of a leading commercial bank in Oman. You are aware that there are no capital controls in Oman and that Omani Rial is pegged against the dollar. Your past experience tells you that while is some weeks your bank has surplus liquidity, in other weeks there are deficits. You are trying to decide whether to use an Asset Conversion Strategy or a Borrowed Liquidity Strategy in managing your bank's liquidity position. Which of these two strategies, would you prefer and why ?