a) Identify which one of the following securities has the highest nominal annual yield at issuance and
Question:
a) Identify which one of the following securities has the highest nominal annual yield at issuance and which one is the safest investment? Use the key determinants of Nominal Interest Rate to briefly explain why.
20-year treasury bonds 10-year corporate bonds with AAA rating 30 -year corporate bonds with AAA rating 10-year corporate bonds with BB rating 30-year corporate bonds with BB rating 3-month treasury notes
b) Monetary policy is one of the key responsibilities of the Reserve Bank of Australia
i) What is Monetary policy?
ii) If inflation next quarter is predicated to fall to 1% p.a. due to the impact of Covid-19, how would the RBA adjust the official cash rate in response to this situation? Briefly explain the reason for this adjustment (Include in your answer the inflation target of monetary policy, the expected effect of any suggested change in cash rate on consumption, investment and the likely change to net export).
c) As the major authorized deposit-taking institutions (ADIs), Australian banks’ safety and profit level have major impacts in Australian economy.
i) List and define 3 major risks faced by banks
ii) List 3 factors that affect the Interest Rate Margin (IRM) of banks.
iii) Briefly explain how the Covid-19 pandemic would affect the major risks of banks and its potential impact on the IRM of banks
iv) Banks are regulated in terms of capital adequacy. Briefly discuss how this requirement would help banks maintain safety during the Covid-19 pandemic.
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain