FINC

Jessicaaaa

Main

Home >Homework Answsers >Business & Finance homework help >Management homework help

urgent

QUESTION 1

When interest rate changes, the impact on a bank’s earnings depends on the repricing of their assets or liabilities.
  Loan A (7%, 1 year) = $100          Deposit A (2.5%, 3 months)   = $250
Loan B (10%, 2 years) = $200       Deposit B (5%, 1 year)        = $ 50
Total Assets                 = $300        Total Liabilities                  = $300
The net interest margin or spread 1%2%3%4%5%6%7%8%9%10%

1 points

QUESTION 2

The average maturity of its assets is larger than that of its deposits, as is typical of most banks. There is a reinvestment risk

re-finance risk re-pricing risk default risk

1 points

QUESTION 3

The average duration of its assets is longer than that of its liabilities. There is a reinvestment risk

re-finance risk

re-pricing risk

basis point risk

1 points

QUESTION 4

If the loan interest rate adjusts every quarter and the deposit interest rate adjust every six months, the risk of interest rate from the different frequencies of rate adjustments is called

Repricing risk

yield -curve risk basis point risk default risk

1 points

QUESTION 5

If the loan interest rate is 4 % mark-up on the 6 month treasury bill and the deposit interest rate is 1% mark-up on the 3 month treasury bill, the risk of interest rate like this is called

Repricing risk yield -curve risk basis point risk default risk

1 points

QUESTION 6

Consider a bank that borrows $100 million in deposits at a floating rate of T-Bill plus 2% and lends at LIBOR plus 4%. Both rates are reset semi-annually. Normally, both rates move together. Assume the 3-month LIBOR rate was 3.40% and the 3-month T-Bill rate was 3.0% when the loan was disbursed. The spread is given as follows1.4%2.4%3.4%4.4%

1 points

QUESTION 7

Assume a bank has the following balance sheet. Determine the 2-year GAP.

AssetAmount LiabilityAmountCash$100 90-day CDs$1006-month Gbonds$400 360-day CDs$200
2-year
commercial
loans$400 Time Deposits 2- year
$900
5-year fixed
rate loans$500 Stockholder’
s equity$200
Total$1,400 Total$1,400 GAP = (RSA2 yr – RSL2 yr)

0-$100-$200-$300-$400

1 points

QUESTION 8

Assume a bank has the following balance sheet. When both the deposit rate and loan rate change by 2%, determine the 1-year net impact on net interest income (ΔNII)

AssetAmount LiabilityAmountCash$100 90-day CDs$1006-month Gbonds$400 360-day CDs$200
2-year
commercial
loans$400 Time Deposits 2- year
$900
5-year fixed
rate loans$500 Stockholder’
s equity$200
Total$1,400 Total$1,400 ΔNII = (RSA1-year – RSL1-year)* (.02)

$2$3$4$5$6

1 points

QUESTION 9

Assume a bank has the following balance sheet
for the 3-year GAP=$? (Hint: only rate sensitive assets and rate sensitive liabilities count)
AssetPotential rate changeAmount LiabilityPotential Rate changeAmountReserves at the FedN/A$200 90-day CDs0.85%$200
6-month T-Bills2.00%$400 360-day CDs1.00%$300
3-year Consumer loans3.00%$600 Time Deposits 2- year
1.50%$1200
10-year mortgages2.00%$800 Stockholder’
s equityN/A$200
Total $2000 Total $2000-300-400-500-600-700800

1 points

QUESTION 10

Assume a bank has the following balance sheet
What is the net impact on net interest income (NII) for 3 YEARS. if interest rates are expected to change as specified in the Potential rate change, (compute the detailed ERA)
AssetPotential rate changeAmount LiabilityPotential Rate changeAmountReserves at the FedN/A$200 90-day CDs0.85%$200
6-month T-Bills2.00%$400 360-day CDs1.00%$300
3-year Consumer loans3.00%$600 Time Deposits 2- year
1.50%$1200
10-year mortgages2.00%$800 Stockholder’
s equityN/A$200
Total $2000 Total $2000$1.1$2.2$3.3$4.4

1 points

QUESTION 11

The elasticity of the change of the price of debt toward the change in interest rate is the absolute value of (and then divided by(1+r))

Convexity

b. Maturity c. Duration d. Immunization

1 points

QUESTION 12

( ) is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates.

ConvexityMaturity

Duration Immunization

1 points

QUESTION 13

Assume a 4-year loan with a principal of $5,000 paying 7% interest. The current market yield on the loan is also 7%. What is the duration of the loan? 1.62 years2.62 years3.62 years4.62 years

1 points

QUESTION 14

14. Estimate the duration of Loan M
Bank Balance SheetCash = $ 50
Loan M (7%, 6 years) = $200Deposit N (3 years, 2%) = $ 200
Equity = $ 50Total Assets = $250Total Liabilities = $ 2503.1 years4.1 years5.1 years6.1 years

1 points

QUESTION 15

14. Estimate the duration of Deposit N
Bank Balance SheetCash = $ 50
Loan M (7%, 6 years) = $200Deposit N (3 years, 2%) = $ 200
Equity = $ 50Total Assets = $250Total Liabilities = $ 2501.942.943.944.94

1 points

QUESTION 16

Δ%(MV) = -MD*Δr When we use this equation to evaluate a loan, this equation does not totally reflect the change in the present value of loans mainly because of the ignorance of which of the following factors

a. Convexity b. Maturity c. Duration d. Immunization

1 points

QUESTION 17

16. In the following balance sheet, estimate the impact on the economic value of equity (EVE).
if all interest rates decrease by 3%, EVE=$( )
Loan A (7.5%, 5 year) = $500Deposit B (5%, 2 year) = $500
Total Assets = $500Total Liabilities = $50036.7338.540.2241.77

1 points

QUESTION 18

In the following balance sheet, estimate the impact on the economic value of equity (EVE).
If interest rates of assets fall by 1% and deposit rates increase by 1%. EVE=$( )
Loan A(8%, 3 year)= $150 Deposit A(5%, 2 years)=$250
Loan B(11%, 4 years)= $200 Deposit B(7%, 3 year)= $100Total Assets = $350 Total Liabilities = $35016.4417.4418.4419.44

1 points

QUESTION 19

In the following balance sheet,
Loan A(8%, 3 year)= $150 Deposit A(5%, 2 years)=$250Loan B(11%, 4 years)= $200 Deposit B(7%, 3 year)= $100Total Assets = $350 Total Liabilities = $350The GAP 3 y

GAP three year0-200-400-350

1 points

QUESTION 20

19. In the following balance sheet,
Loan A(8%, 3 year)= $150 Deposit A(5%, 2 years)=$250Loan B(11%, 4 years)= $200 Deposit B(7%, 3 year)= $100Total Assets = $350 Total Liabilities = $350The GAP 3 yr=-200

if all interest rates decrease by 3%, net impact on net interest income (ΔNII) is

+$6+$7+$8+$9

1 points

QUESTION 21

20. When both deposit and loan interest rates decrease at the same speed in the market, a bank tends to ( ) to make money.(a. reinvest

b. refinance c. keep neutral)

1 points

QUESTION 22

When both deposit and loan interest rates increase at the same speed in the market, a bank tends to ( ) to make profit. a. reinvest b. refinance c. keep neutral

1 points

QUESTION 23

When borrowers tend to pay back the loans to bankers earlier, the bank is facing a. Repricing risk b. Yield curve risk c. Basis points risk d. Embedded options risk

1 points

QUESTION 24

24. The GAP analysis and EAR analysis

a. If GAP is positive and interest rate increases the same on both asset and liability sides, EAR increases.b. If GAP is negative and interest rate decreases the same on both asset and liability sides, EAR increases.
c. If EARs for year 1, year 2, year 3. ….up to year 30 are all positive, the bank should be profitable.
d. If GAP for year 1, year 2, year 3. ….up to year 30 are all zero, the bank’s interest rate risk should be very low.

all a,b,c,d are correct.

1 points

QUESTION 25

25. The Federal Reserve has tools at its disposal to implement monetary policy, which does NOT include

a. Reserve requirements
b. Regulate investment banks

c. Open market operations
d. Discount rate

1 points

QUESTION 26

26. ( ) is responsible for conducting monetary policy by influencing money supply and interest rates.

a. A Commercial Bank
b. A credit union

c. A Central Bank
d. An investment bank

1 points

QUESTION 27

The use of paper money

a. people trust paper money more than metal coins.
b. Improves the Durability of the currency

c. Improve the transportability of the currency

e.remedies the problem of Gresham’s Law

d. Improve the scarcity of the currency

1 points

QUESTION 28

When the Federal Reserve buys T-Bonds in the US market.

a. Money supply increases

b. Money supply decreases

c. Irrelevant to Money Supply

1 points

QUESTION 29

29. When the Federal Reserve increase the discount rate of the Fed Fund in the US market.

a. Money supply increases
b. Money supply decreases

c. Irrelevant to Money Supply

1 points

QUESTION 30

30. By raising the reserve requirement, the central bank

a. Money supply increases

b. Money supply decreases
c. Irrelevant to Money Supply

1 points

QUESTION 31

Negative Interest rate

a. This action was meant to complement the quantitative easing
b. encourages banks to lend more instead of keeping them as excess reserves.

c. Customers will consume more and deposit less.
all are correct.

1 points

QUESTION 32

about SOFR and LIBOR
a SOFR represents the interest rate of the unsecured funds
LIBOR is a good proxy of the risk-free rate
SOFRs include triparty repo data from the Bank of New York Mellon (BNYM) and the Depository Trust & Clearing Corporation (DTCC).

LIBOR now in 2020 is still the most influential interest rate in the international market.

1 points

QUESTION 33

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 other 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.

1 points

QUESTION 34

What are CAMELS? They are ratings assessed by bank regulators after on-site examinations.
Which one is wrong

a. C =     Capital adequacy
b. A =     Assurance of Assessment
c. M =    Management

d. E =     Earnings

e. L =     Liquidity

1 points

QUESTION 35

About Insurance, which one is wrong?

a. insurance firms purchase re-insurance to reduce/alleviate/diversify the risk.
b. Deposit insurance is used in commercial banking businesses.
c. Underwriting and reinsurance risks are the major risks for insurance companies.

d. Categorized as Life insurance and non-life (property/casualty, including medical) insurance.

e. The US became a dominant insurer from modest roots planted in the 16th century.

final.pdf

6 years ago
22.05.2020
15

Report issue

Answer(0)

other Questions(10)