Why 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.

Why 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.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Match the correct type of bank risk with the appropriate associated statement. 1.The possibility that a borrower could make late, reduced, or no payments on their loans. 2.Bank management may make poor strategic decisions that result in lower profits for the bank. 3.Hackers could break into bank customer accounts. 4.Inability to access capital markets and higher borrowing costs could hurt the bank's ability for funding opportunities. 5.Changes in the yield curve could increase short-term rates and/or decrease long-term rates, resulting in a lower net interest margin for the bank. 6.General economic conditions can affect banks in the U.S. Liquidity Risk 7.Differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities could put the bank's earnings at risk. Credit Risk Business Operations Risk Market risk Interstate Rate Risk Liquidity Risk
How should a bank structure its liquid assets portfolio to take advantage of falling interest rates ? a. The bank should invest in short-term securities to minimise capital loss b. The bank should invest in long term securities to maximise capital gains. c. The bank should borrow at fixed interest rates d. The bank should issue certificate deposits with fixed interest rates. e. The bank should hold cash to maximise its interest income. Which option is correct
H1.
Assume 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 False
As a bank manager, you conclude that the bank has a capital shortfall and should decrease the equity multiplier (i.e., increase the capital ratio) to prevent bank failure. Which of the following is one of things you can do to manage capital adequacy of the bank? a.Acquiring more reserves through borrowing from fed funds loansb.Selling the bank's holding of mortgage-backed securities and using the proceeds to decrease liabilitiesc.Repurchasing shares of the bankd.Increasing dividend payout ratio to reduce retained earnings.
Which of the following is NOT an advantage of depositing funds into a bank account (compared to directly purchasing corporate bonds and shares): Options 1. Higher transactions costs 2. Monitoring performed by the bank on behalf of the depositor 3. Better liquidity if funds are needed quickly 4. Efficient payment services 5.Reduced price risk if funds are needed immediately
Banks tend to focus their loans in one industry so that they can specialize on that industry and reduce the credit risk of their loan portfolio. Group of answer choices: True False
What are bank assets used for? Bank liabilities are the sources of bank ________? Bank capital is the contribution of the bank's owners; it acts as a cushion against what? Banks make a profit for their owners. Measures of a bank's profitability include what four things? Banks' off-balance-sheet activities have become increasingly important in recent years. What are these two things? Banks face several types of risk in day-to-day business. List them:
Which of the following is not true Large Value Transfer System is an electronic, real time net settlement network The Bank of Canada implements monetary policy by lending money at the prime rate LVTS and ACSS are operated by the Canadian Payments Association The market for settlement balances is where overnight interest rate is determined Financial innovation has caused banks to suffer declines in their cost advantages in acquiring funds, although it has not caused a decline in income advantages banks to suffer a simultaneous decline of cost and income advantages banks to suffer declines in their income advantages in acquiring funds, although it has not caused a decline in cost advantages banks to achieve competitive advantages in both costs and income
Depositing money into a commercial bank is investing in a a.secondary market. b.subprime market. c.predatory lending market. d.primary market.
Why is the Fed’s discount window considered the “lender of last resort” for some banks?
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 risk

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