Questions and Answers of Financial Institutions Management

How do fi nancial intermediaries generate profi ts?
Explain why the banking system was so unstable prior to the establishment of the Federal Reserve System in 1914.
What is a call loan? How did call loans contribute to economic recessions?
Currently a community bank has $45,000 in reserves, demand deposits of $200,000, and loans of $145,000. It unexpectly receives an inflow of deposits of $50,000 into checking accounts and another
Suppose the current reserve requirements set by the Federal Reserve are as follows:A bank has vault cash of $2 million, reserve deposits at the Federal Reserve of $25 million, transaction deposits of
Refer to the table in Question 13. Now suppose the Federal Reserve raised the reserve requirements on deposits between $10.7 million and $55.2 million to 5 percent but eliminated the reserve
Given your answers to Question 7, what, if anything, would you expect to happen to (a) housing investment,(b) plant and equipment investment, (c) intended inventory investment, (d) government
Assume the Fed undertakes open-market operations and buys Treasury securities. Explain what should happen to interest rates. What is the expected change in nominal GNP? How is nominal GNP then
In your opinion, what were the three most important causes of the 2008 financial crisis?
Explain what is meant by the term negative interest rate. Why can interest rate never be negative?
Explain why yields and prices of fixed-income securities are inversely related.
Carol Chastain purchases a 1-year discount bond with a $1,000 face value for $862.07. What is the yield of the bond?
Suppose the 7-year spot interest rate is 9 percent and the 2-year spot interest rate is 6 percent. The forecasted 3-year rate 2 years from now is 7.25 percent.What is the implied forward rate on a
Assume that the term structure of Treasury securities includes the following rates:Using this information calculate: (a) the 6-month annualized yield expected in the second half of the current year,
If interest rates are expected to increase, then identify what happens to the following factors using the expectations theory.a. Demand for short-term securities by investors Increase / Decreaseb.
Describe the steps in a typical banker’s acceptance transaction. Why is the banker’s acceptance form of fi nancing ideal in foreign transactions?
If you expect prices and incomes to rise, what type of mortgage would you rather have on your house: FRM or ARM? What if you expected prices to fall? Explain your answer. Also explain how your answer
Describe the major differences between common stock and preferred stock.
Explain the differences among a market order, limit order, stop loss order, and stop buy order.
What agency is the chief regulator of futures markets?Why is federal regulation necessary?
Describe the factors that promoted the internationalization of financial markets during the previous 15 years. Are any of these factors reversible?
Give the reasons that banks select the bank holding company form of organization. Why would a bank holding company seek to convert to a fi nancial holding company?
The recent development of microfinance led to new ways of looking at banking relationships. Do you believe that microfinance is entirely consistent with bank wealth maximization? If not, what
Explain why bank regulators are so concerned with capital adequacy for the banking industry
Assume it was determined that the insurer in question 17 had overestimated its loss reserves by $20 million.If the loss reserve estimate was corrected, what is the impact on policyholders’ surplus?
Granite Insurance Company’s combined ratio 2 years ago was 1.035. A review of that year’s financial statements showed the company paid $4.5 million in income taxes.Why was the company required to
Explain why issuing new securities can be a risky business.
Suppose a financial institution holds a portfolio of bonds with a value of $50,000,000 and duration of 3.5.The portfolio currently yields 4 percent, and you don’t anticipate any changes in the
What are the strategic drivers facilitating the growth of the financial services industry?
Explain how technological trends shape the future of financial institutions.
Discuss the major challenges faced by financial institutions.
Explain the impact of the global financial crisis on the financial system.
What are depository and nondepository institutions?
Explain the significance of shadow banking systems.
Discuss the critical role of regulation in the financial environment.
Explain the functions of regulatory agencies.
List the major regulatory reforms in the financial sector.
Why is the failure of the regulatory system often considered a reason for the recent economic crisis?
Discuss the major instruments of bank regulation.
Discuss the salient features of the Basel reforms.
Critically evaluate the Basel frameworks.
What are the basic risk mitigation strategies?
Explain the structure of the risk management framework in banks.
Discuss risk management systems.
Explain credit risk.
Explain how credit risk is managed.
What are the different types of interest rate risks?
How is interest rate risk measured?
Discuss market risk management.
Discuss liquidity risk and its management.
Discuss operational risk and its management.
List other types of risks.
What are the major risks in nonbanking financial institutions?
Discuss the structure of financial markets.
Discuss the different types of money market and capital market instruments.
Explain the fundamentals of a bond.
What is an indenture?
Explain credit ratings.
What are the major debt instruments issued in the international debt market?
Distinguish between Eurobonds, foreign bonds, and global bonds.
Discuss the different types of Eurobonds.
What are the different types of floating rate notes?
What are the different bond investing strategies?
Explain mortgage markets.
What are the different types of MBS?
Explain the following: (a) MBS and (b) CMOs.
Discuss the main characteristics of common stock.
Explain the process of an IPO.
Explain the green shoe option.
Distinguish between an auction and dealer market.
What are the different types of market orders in a stock market?
What is short selling?
Discuss the different methods used to purchase foreign stocks.
Distinguish between active and passive strategies.
Explain the various types of basic derivatives.
Discuss the various types of futures and options contracts.
What are the different types of swaps?
Explain weather, commodity, and insurance derivatives.
What are the major functions of financial institutions in the derivatives markets?
Distinguish between hedgers, speculators, and arbitrageurs.
What is hedging?
Discuss the salient features of the international monetary system.
Discuss the salient features of the EMS.
What are the components of a BOP?
Explain PPP and IRP theories.
How do you explain the foreign exchange market?
What are the different types of foreign exchange markets?
Discuss the different types of risks in foreign exchange markets.
How do you manage transaction and translation exposure?
How do you manage operating exposure?
Discuss the major services offered by commercial banks.
What is net spread?
What are the trends and challenges faced by the commercial banking industry?
What are the main functions of commercial banks?
Discuss the major sources and uses of funds for commercial banks.
What are the off-balance sheet activities of commercial banks?
How can a commercial bank’s performance be evaluated?
What are the different types of thrift institutions?
Explain the highlights of major regulations for thrift institutions.
Explain risk management in thrift institutions.

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