FIN4063 CH17 Banking & the Management of Financial Institutions Worksheet Instructions: – Find the attached file which includes the questions. – Use your

FIN4063 CH17 Banking & the Management of Financial Institutions Worksheet Instructions:

– Find the attached file which includes the questions.

– Use your own words for this assignment. ( No Citation, No References )

– If you need to solve questions that need to do some calculations ( Please use Financial calculator only ) ( Do not use excel)

and show the calculations steps.

– Do not make answers too long ( Simple and good ) ( 2-4 sentences maximum for each question )

– Please find the attached PowerPoint file which is the chapter of this assignment ( you may find and use information from it ).

Thank you Chapter 17 Homework Assignment
Finance 4063: Financial Institutions and Markets
Name _________________________________
1. Which components of operating expenses experience the greatest fluctuations? Why?
2. Why do equity holders care more about ROE than about ROA?
3. If a bank is falling short of meeting its capital requirements by $1 million, what three things can it
do to rectify the situation?
4. Angus Bank holds no excess reserves but complies with the reserve requirement. The required
reserves ratio is 9%, and reserves are currently $27 million. Determine the amount of deposits, the
reserve shortage created by a deposit outflow of $5 million, and the cost of the reserve shortage if
Angus Bank borrows in the federal funds market (assume the federal funds rate is 0.25%).
5. Nice Horizon Bank has the following measures of bank profitability: EM = 14 and ROA = 1.05%.
Gold Coast Bank’s measures are EM = 12.3 and ROA = 1.15%.Which bank has a higher ROE?
6. Refer to the previous problem. Calculate both banks’ net profit after taxes and equity capital if
both banks’ assets are equal to $120 million.
7. A bank is considering two investment portfolios com- posed of a mix of government securities
(federal and municipal securities). The first portfolio has a return of 6% with probability 0.9 and
returns of 5% and 7% with 0.05 probability. The second portfolio has a return of 5% with
probability 0.5 and a return of 7% with probability 0.5. Which portfolio has the best combination
of return and risk?
Chapter 17
Banking and the
Management of
Financial
Institutions
Chapter Preview (1 of 2)
• Banks play an important role in channeling funds (about $6
trillion annually) to finance productive investment opportunities.
• They provide loans to businesses, finance college educations,
and allow us to purchase homes with mortgages.
Chapter Preview (2 of 2)
• In this chapter, we examine how banking is conducted to earn
the highest profits possible. In the commercial banking setting,
we look at loans, balance sheet management, and income
determinants. Topics include:
– The Bank Balance Sheet
– Basics of Banking
– General Principles of Bank Management
– Off-Balance Sheet Activities
– Measuring Bank Performance
The Bank Balance Sheet (1 of 2)
• The Balance Sheet is a list of a bank’s assets and liabilities
• Total assets = total liabilities + capital
The Bank Balance Sheet (2 of 2)
• A bank’s balance sheet lists sources of bank funds (liabilities)
and uses to which they are put (assets)
• Banks invest these liabilities (sources) into assets (uses) in
order to create value for their capital providers
Table 17.1 Balance Sheet of All Commercial
Banks (items as a percentage of the total, 2016)
16
Blank
Checkable deposits
Blank
Blank
Nontransaction deposits
14
Blank
Small-denomination time deposits
6
Blank
(
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