With reference to the study entitled, "Loan portfolio diversification, market structure and bank stability" by Shim (2019), discuss the interlink among loan diversification, market concentration, and financial stability.
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- How does a bank try to achieve the best possible risk adjusted return on its overall loan portfolio?Illustrate with a diagram the flow of funds from lenders to borrowers in a financial system. Diagram must include: Savers Borrowers Financial markets Function of the financial intermediaries Function of the financial markets Direct finance Indirect financeIn which economic conditions would a central bankwant to use a “forward-guidance” strategy? Based onyour previous answer, can we easily measure the effectsof such a strategy?
- Explain the following concepts in relation to the role that banks play in financial markets: i) Loan size transformation ii) Maturity transformation iii) Risk transformationWhat is the vocabulary word for money that's in financial markets, and a rate of return for a specific investment?8. According to the Loanable funds' theory, how are interest rates determined?9. Compare and contrast three different money market securities in terms of issuer, return, risk and tradability/liquidity.10. Explain the role of non-depository financial institutions within the financial sector? Discuss the core functions of any three of these institutions.
- Critically discuss the pros and cons of diversification in banking.Briefly compare and contrast the credit risk management practices and outcomes for Wells Fargo, Goldman Sachs and UBS's annual report of 2022. Explain which of these three institutions has the most credit risk and which one has the least credit risk. Justify your answer with at least two numerical comparisons of these three institutions, and at least one qualitative comparison between these three institutions. Use data and descriptions from the risk management section of the annual reports.Provide the formulas to calculate the following items from a company's financial statement: 1. Cash Position Indicator2. Liquid Securities Indicator3. Net Fed Funds and Repurchase Agreements Indicator4. Capacity Indicator5. Pledged Securities Ratio6. Hot Money Ratio7. Core Deposit Ratio8. Deposit Composition Ratio9. Loan Commitments Ratio
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