1 Capitals are funds contributed by the owners of a financial institution. Raising and retaining sufficient capital...
Question:
1 Capitals are funds contributed by the owners of a financial institution. Raising and retaining sufficient capital to protect the interests of customers, employees, owners, and the general public is tough.
(i) Explain two crucial role capital plays in the management and viability of a financial firm? (2 marks) (ii) The principal forms of bank capital include common and preferred stock. Identify at least three other forms of bank capital. (3 marks)
Question 2 A financial firm is asset sensitive when it has more interest-rate sensitive assets maturing or subject to repricing during a specific time period than rate-sensitive liabilities. A liability sensitive position in contrast, would find the financial institution having more interest-rate sensitive deposits and other liabilities than rate-sensitive assets for a particular planning period.
(i) In the event if a financial institution has a Negative GAP and interest rates increases in the market, what impact will be on Net Interest Margin (NIM)? State whether NIM will increase or decrease. (1 mark)
(ii) What type of hedging option (short hedge or long hedge) should the financial institution opt for to protect itself from market interest rate risk? (2 Marks)
(iii) Derivatives are normally engaged by the financial managers to protect its institutions assets and liabilities portfolio's due to mismatch of maturities. In the above given scenario, what type of option's contract should be exercise by the bank? (2 marks)
Question 3 (i) Securitized Assets are normally uniform in and quality of home loans (mortgages). Critically explain three procedures involved in Securitized Assets? (3 marks)
(ii) The primary function of most banks and other depository institutions is not to buy and sell bonds, but rather to make loans to businesses and individuals. However many banks and other institutions choose to devote a significant portion of their assets to investment securities. Explain two reasons why investments are referred as crossroad accounts? (2 marks)
Business Law With UCC Applications
ISBN: 9780073524955
13th Edition
Authors: Gordon Brown, Paul Sukys