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- A bank that grants loans to firms in a many different lines of business: will increase its information cost and decrease its credit risk will increase both its information cost and its credit risk will decrease its information cost and decerase its credit risk will decrease its information costs and increase its credit riskWhy do commercial banks, like Westpac and ANZ, engage in credit risk transformation? O a. The commercial can quickly convert financial assets into cash at close to the current market price. O b. The commercial bank pools together savers' short-term deposits and make long-term loans. Oc. All of the options are correct. Od. The commercial bank obtains cost advantages owing to their size and business volumes transacted. Oe. The commercial bank can develop expertise in lending and diversifying loans.Explain how commercial bank mange it balance sheet to maximize its profit without affecting the liquidity.
- Which of the following statements about transaction costs and financial intermediation is not true? A. Low transaction costs allow banks to offer diversified assets to their customers B. Low transaction costs allow banks to offer liquidity services C. Low transaction costs are due to diseconomies of scale in financial intermediation D. Low transaction costs allow banks to engage in risk sharingHow does capital protect a bank from failure? Why are banks currently holding capital well above the minimum regulatory requirement? What are the ways in which a bank can increase its capital ratio?Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth potential. If the bank anticipates a decrease in its capital adequacy ratio (capital to total asset ratio), what options are available to prevent the decline? What risks, if any, are there in each strategy... Banks’ managers do not want to mmaintain much capital because they do not bear fully the costs of their failure. In addition to this reason others claim that banks’ managers do not want to maintain higher levels of capital because higher levels of capital attract greater scrutiny from bank regulators. Comment on this claim. The two most pressing demands for liquidity from a bank come from, first, customers withdrawing their deposits. Identify and discuss the second demand on the bank for liquidity.
- Which of the following has caused banks difficulty in estimating liquidity needs?A. competition for loans from other financial institutionsB. deregulation of interest rate ceilings on depositsC. competition for loans from nonfinancial institutionsD. a, b, and cSelect all that are true regarding credit risk for a bank. O This risk is an estimate of future uncollectibility that results in a provision expense on the bank's income statement. O Changes in the business cycle affect all firms the same, so credit risk is pro-cyclical. O Despite it's significance to banks, the housing market is a small part of the economy and has little effect elsewhere so there is no impact to credit risk. Material changes in the housing market impacts banks and their credit risk significantly due to the relative size of the mortgage portfollos. O Business cycles create variations in this risk, but affect each borrower differently.Banks differ from other types of depository institutions in that: I. banks have more diversified asset portfolios. II. banks obtain funds from more different types of sources. III. the average size bank is larger than other depository institutions. a. I only b. I and II only c. I and III only d. II and III only e. I, II, and III Clear my choice
- Banks still make more money on investments than fees for customer-related non-credit-related fees. They structure loans to earn more in the form of increased interest and reduced risk. In which area do critics accuse investment banks of only being interested in pocketing fees? Select the correct choice : a.Mergers and acquisitions b.Market making c.Commodities trading d.Client-related tradingAssume two banks are equal to each other in size in terms of total assets. The bank which has more liquidity will have a lower return on equity Select one: O True O FalseMinimum capital requirement is a popular tool for bank regulation around the world. Some commented argue for differential capital requirements with the size and the systemic importance of financial institutions as the key discriminating factor. What are the basic arguments for increasing capital requirements at large commercial banks? In what ways will depositors, stockholders, and society in general benefit? How might each group be disadvantaged? As commercial banks enter new lines of business such as brokerage, how much additional capital should be required? Should these new lines of business be insured under a depository insurance scheme? Why or why not? Give examples from today's financial marketplace.