FIN20013 Banking Operations and Governance Assignment 2

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PART A

 

The book value of DRAGON SLAYER BANK’s balance sheet is listed below. The current market yield for the securities is in parentheses. The amounts are in millions.

 

Asset

 

Liability & Equity

 

Cash

55

Demand deposits

300

6 month T-bills (4.25%)

50

Savings accounts (2.0%)

205

2 year personal fixed rate loan at

100

3 month CD (2.50%)

150

6.50%

 

 

 

3 year T bills (4.85%)

100

9 months CDs (3.85%)

150

3 year 5.5% semi-annual coupon

90

1 year term deposit (4.0%)

520

T-notes (5.25%)

 

 

 

5 year 6.2% semi-annual coupon

100

2 year term deposits (4.30%)

200

T-notes (5.75%)

 

 

 

5 year personal loan (11.5%,

350

 

 

repriced yearly)

 

 

 

5 year bond 8.0% annual coupon

150

5-year bonds at 6.75%

250

issued by Spanish government with

 

semiannual interest, balloon

 

rating credit rating B

 

payment

 

 

 

20-year bonds at 7.5%

250

 

 

interest, balloon payment

 

10 year commercial loan (12.25%

730

 

 

repriced @ 6 months)

 

Subordinate notes:

 

 

 

 

15-year commercial loan at 10%

220

3-year fixed rate (5.65%)

230

interest (repriced monthly)

 

 

 

20-year sovereign bonds 12.0%

150

6-year fixed rate (6.00%)

150

annual-coupon issued by

 

 

 

Cambodian government with BB

 

 

 

rating

 

Ordinary Equity

20

 

 

20-year mortgages at 8.5% interest

390

Preference shares

20

(LVR 65%, no mortgage

 

 

 

insurance), balloon payment^

 

Retained Earnings

40

 

 

Total Assets

 

Total liability and equity

 

2485

2485

 

 

 

 

 

 

 

 

 

 

 

F I N 2 0 0 1 3

A s s i g n m e n t  2  2 0 1 6

 

Page 2

 

 

 

 

 

 

 

 

 

 

 

 

 


Required

 

1.     What is the cumulative repricing gap if the planning period is

 

(a)  3 month

 

(b)  2 year

 

(2 + 2 marks)

 

2.     What will happen to the net interest income of the bank, if interest on the banks rate sensitive assets is forecasted to decrease by 60 basis points and rate-sensitive liabilities to increase 25 basis points in 6 months’ time?

 

 

 

(4 marks)

3.

Due to the uncertainty in the economy, based on the bank’s estimate there is a potential of

 

decrease in the demand deposits. What are some of the impact may that have on the

 

bank’s overall asset-liability?

(4 marks)

4.

Does the bank have sufficient liquid capital to cushion any unexpected losses as per the

 

Basle III requirement? (ignore cyclical buffer requirement)

(8 marks)

 

 

PART B

 

The following is the balance sheet of a VRY-SMPL Bank. All the items are recorded based on the book value and they were purchased at par value.

 

Asset

 

Liability

 

5 year semi-annual 6.45%pa coupon

250

6 months treasury bills

250

bond

 

 

 

10 year 3.5% annual coupon bond

100

3 year semi annual coupon 5.50% bond

200

10 year treasury bond 7.5 % semi

350

6 year annual coupon (6.30%pa) bond

200

annual coupon

 

 

 

 

 

Equity

50

 

700

 

700

 

 

5.  Assume current market yield is flat at 6.5% p.a. What is the duration gap of the bank

 

(6 marks)

 

6.     Using the duration gap estimated from question 6, what will happen to the net worth of the bank if the market yield goes up by 1.5%p.a.?....................................................... (4 marks)

 

7.  What is the maturity gap of the bank                                                                                                   (2 marks)

 

 

 

 

PART C (8 marks) -- word limit : 500 words

 

The Basel Banking supervision committee has proposed the Basle III standards.

 

       Compare and discuss the differences between Basle II and the Basle III.

 

       What are some of the requirements (and issues) faced by the financial institutions in trying to meet these new requirements?

 

(8 marks)

 

 

 

 

 

 

 

 

 

 

F I N 2 0 0 1 3

A s s i g n m e n t  2  2 0 1 6

 

Page 3

 

 

 

 

 

 

 

 

 

 

 

 

 


Some notes:

 

       Question 2 - Read Chapter 5. Or refer tutorial (topic 5) question 16

 

       Questions 2 to 4 - There is no word limit. However if you know the key issues, you should be able to explain your answer within 500 words.

 

       Question 4, To avoid any confusion, please use the following link from APRAfor conversion purpose. You mainly only require to refer to Attachment A and Attachment F.

 

http://www.apra.gov.au/adi/PrudentialFramework/Documents/Basel-III-Prudential-Standard-APS-112-(January-2013).pdf

 

 

 

 

 

 

 

 

 

 

    • 7 years ago