The financial market is volatile and requires constant monitoring to ensure bank managers can be reactive and proactive towards changing business and economic environments. Given this, examine how bank managers can employ financial forwards, futures and swap contracts to reduce the bank’s potential exposure to loss when market conditions change.

The financial market is volatile and requires constant monitoring to ensure bank managers can be reactive and proactive towards changing business and economic environments. Given this, examine how bank managers can employ financial forwards, futures and swap contracts to reduce the bank’s potential exposure to loss when market conditions change.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 5P

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If the interest rate goes down, what risk does the bank face in the mortgage market? More borrowers will initiate new mortgages Borrowers are more likely to refinance O They make less money on mortgages that are not refinanced O Fewer borrowers will initiate new mortgages
Given that banks are operating within a highly disruptive economy it is imperative that a robust Technology Risk Management Framework (TRMF) is in place.i. Name two risk factors that need to be taken into account in the TRMF? ii. Describe two scenarios that could constitute a risk to the bank if the factors mentioned in Question i. were not taken into consideration. iii. What is the possibility of these risks occurring and what would the impact to the bank be? iv. Describe how you would prioritise the risks to ensure the least impact?
should banks restructure their assets and liability composition if market participants are anticipating major central banks will raise interest rates to reduce interest rate risk?
If lines of credit and other off-balance-sheet activities do not, by definition, appear on the bank’s balance sheet, how can they influence the level of liquidity risk to which the bank is exposed?
Central Pipeline MindTap - Cengage Learning Content crosot ng.cengage.com/static/nb/ui/evo/index.html?deploymentld=58326424525984828412294502&elSBN=9781337915601&id%3D1276443767&snaps. CENGAGE MINDTAP Q Searc Aplia Homework: Banking and the Money Supply Back to Assignment Attempts Keep the Highest/ 1 1. Money aggregates Identify whether each example in the following table belongs in M1, M2, or both. If an example belongs in both, be sure to check both boxes. Example M1 M2 Alyssa has $8,000 in a two-year certificate of deposit (CD). Nick has a roll of quarters that he just withdrew from the bank to do laundry. Tim has $25,000 in a money market account. Grade It Now Save & Continue Continue without saving
Suppose the bank expects interest rates to rise which would impact the value of theirgovernment bonds. Suppose the price of the 10 year Treasury bonds is expected tochange by 6%. Would this cause a problem for the bank? Why or why not?
How do monetary financial institutions create liquidity, pool risk, lower the cost ofborrowing, and lower the cost of monitoring borrowers?
Select all that are true reagrding market risk for a bank. Adverse changes in the relative strength of the business cycle (GDP) negatively impact the investment portfolio, which acts as a hedge to the lending side of the business thus creating market risk. Market risk includes unexpected events such as COVID. Since monetary policy has a macro economic effect it does not change overall market risk for the bank. The level and target of fiscal policy changes the bank's market risk. International markets have little to no effect on U.S. banking institutions.
The term “moral hazard” describes increases in risky behavior resulting from efforts to make that behavior safer. How does the concept of moral hazard apply to deposit insurance and other bank regulations? Can you think of any arguments in favor of getting rid of the FDIC? How might doing so improve the safety of banks?
A bank almost always insists that the firms it lends tokeep compensating balances at the bank. Why?
Which of the following would cause banks to increase the amount of excess reserves that they hold? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a b Question 25.14 C d Loans to customers look safe and market interest rates are high compared to the interest rate on excess reserves. The economy is booming and there is a great demand for business loans. Loans to customers look unusually risky or market interest rates are low compared to the interest rate on excess reserves. They anticipate a bank audit.