Examine the credit card loss rates and personal bankruptcy filings in Exhibit 15.4. What might explain the increase in both measures after 1994 in a period when economic growth in the United States was strong and unemployment was low? Given the problems in 2008– 2009, what will be the likely impact on future loss rates and bankruptcy filings?
Answer to relevant QuestionsWhy are home equity loans attractive today? How do some banks tie home equity loans to a customer’s credit card? How did the credit crisis and subprime problems of 2008– 2009 change the attractiveness of home equity ...What different sources of revenue are available from credit card lending? Outline the clearing process with a credit card transaction. What is the biggest risk in credit card loans? Large banks often borrow heavily in the federal funds market and maintain small investment portfolios relative to their asset size. Are these offsetting risk positions? Why do large banks organize themselves this way? Describe the basic strategy in riding the yield curve. Can you ride the yield curve if the yield curve is downward sloping with short- term rates above long- term rates? What is the option in a callable agency bond? What impact does the call deferment period have on a callable bond’s promised yield? What is the primary advantage of a discount callable bond versus one trading at par?
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