《商业银行管理》课后习题答案Problem7
《商业银行管理学》课后习题答案与解析
《商业银行管理学》课后习题及题解第一章商业银行管理学导论习题一、判断题1.《金融服务现代化法案》的核心内容之一就是废除《格拉斯－斯蒂格尔法》。
2.政府放松金融管制与加强金融监管是相互矛盾的。
3.商业银行管理的最终目标是追求利润最大化。
4.在金融市场上,商业银行等金融中介起着类似于中介经纪人的角色。
5.商业银行具有明显的企业性质,所以常用于企业管理的最优化原理如边际分享原理、投入要素最优组合原理、规模经济原理也适用于商业银行。
6.金融市场的交易成本和信息不对称决定了商业银行在金融市场中的主体地位。
7.企业价值最大化是商业银行管理的基本目标。
8.商业银行管理学研究的主要对象是围绕稀缺资源信用资金的优化配置所展开的各种业务及相关的组织管理问题。
9.商业银行资金的安全性指的是银行投入的信用资金在不受损失的情况下能如期收回。
二、简答题1.试述商业银行的性质与功能。
2.如何理解商业银行管理的目标？3.现代商业银行经营的特点有哪些？4.商业银行管理学的研究对象和内容是什么？5.如何看待"三性"平衡之间的关系？三、论述题1.论述商业银行的三性目标是什么,如何处理三者之间的关系。
2.试结合我国实际论述商业银行在金融体系中的作用。
第一章习题参考答案一、判断题1.√2.×3.×4.√5.×6.√7.×8.√9.√二、略；三、略。
第二章商业银行资本金管理习题一、判断题1. 新巴塞尔资本协议规定,商业银行的核心资本充足率仍为4％。
2. 巴塞尔协议规定,银行附属资本的合计金额不得超过其核心资本的50%。
3. 新巴塞尔资本协议对银行信用风险提供了两种方法：标准法和内部模型法。
4. 资本充足率反映了商业银行抵御风险的能力。
5. 我国国有商业银行目前只能通过财政增资的方式增加资本金。
6. 商业银行计算信用风险加权资产的标准法中的风险权重由监管机关规定。
二、单选题1. 我国《商业银行资本充足率管理办法》规定,计入附属资本的长期次级债务不得超过核心资本的。
《商业银行管理》课后习题答案problem6-2
Chapter 6Problems6-11. Casio Merchants and Trust Bank, N.A., has a portfolio of loans and securities expected to generate cash inflows for the bank as follows:Expected Cash Receipts Period in Which Receipts Are Expected$1,385,421 Current year746,872 Two years from today341,555 Three years from today62,482 Four years from today9,871 Five years from todayDeposits and money market borrowings are expected to require the following cash outflows:Expected Cash Payments Period in Which Payments Will be Made$1,427,886 Current year831,454 Two years from today123,897 Three years from today1,005 Four years from today----- Five years from todayIf the discount rate applicable to the above cash flows is 8 percent, what is the duration of the bank's portfolio of earning assets and of its deposits and money market borrowings? What will happen to the bank's total returns, assuming all other factors are held constant, if interest rates rise? If interest rates fall? Given the size of the duration gap you have calculated, what type of hedging should the bank engage in? Please be specific about the hedging transactions that are needed and their expected effects.Solution:Casio has an asset duration of:$1,385,421 *1 + $746,872 * 2 + $341,555 * 3 + $62,482 * 4 + $9,871 * 5(1 + 0.08)1 (1 + 0.08)2 (1 + 0.08)3 (1 + 0.O8)4 (1 + 0.O8)5D A = $1,385,421 + $746,872 + $341,555 + $62,482 + $9,871(1 + 0.08)1 (1 + 0.08)2 (1 + 0.08)3 (1 + 0.08)4 (1 + 0.08)5=$3,594,1481 / $2,246,912 = 1.5996 yearsCasio has a liability duration of:$1,427,886 * 1 + $831,454 * 2 + $123,897 * 3 + $1,005 * 4(1 + 0.08)1 (1 + 0.08)2 (1 + 0.08)3 (1 + 0.08)4D L=$1,427,886 + $831,454 + $123,897 + $1,005(1 + 0.08)1 (1 + 0.08)2 (1 + 0.08)3 (1 + 0.08)4= $3,045,808 / $2,134,047 = 1.4272 yearsCasio's Duration Gap = Asset Duration - Liability Duration = 1.5996 - 1.4272 = 0.1724 years.Because Casio's Asset Duration is greater than its Liability Duration, the bank has a positive duration gap, which means that the bank's total returns will decrease if interest rates rise because the value of the liabilities will decline by less than the value of the assets. On the other hand, if interest rates were to fall, this positive duration gap will result in the bank's total returns increasing. In this case, the value of the assets will rise by a greater amount than the value of the liabilities.Given the magnitude of the duration gap, the management of Casio Merchants and Trust Bank needs to do a combination of things to close its duration gap between assets and liabilities. It probably needs to try to shorten asset duration, lengthen liability duration, and use financial futures or options to deal with whatever asset-liability gap exists at the moment. The bank may want to consider securitization or selling some of its assets, reinvesting the cash flows in maturities that will more closely match its liabilities' maturities. The bank may also consider negotiating some interest-rate swaps to change the cash flow patterns of its liabilities to more closely match its asset maturities. Alternative Scenario 1:Given: The discount rate applicable to Casio's cash inflows and outflows falls to 6 percent. How does the duration of its earning assets and liabilities change? How does this change affect the bank's sensitivity to interest rate movements?Solution:Casio now has an asset duration of:$1,385,421 * 1 + $746,872 * 2 + $341,555 * 3 + $62,482 * 4 + $9,871 * 5(1 + 0.06)1 (1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4 (1 + 0.06)5D A =$1,385,421 + $746,872 + $341, 555 + $62,482 + $9,871(1 + 0.06)1 (1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4 (1 + 0.06)5= $3,731,603 / $2,315,358 = 1.6117 yearsCasio now has a liability duration of:$1,427,886 * 1 + $831,454 * 2 + $123,897 *3 + $1,005 * 4(1 + 0,06)1 1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4D L=$1,427,886 + $831,454 + $123,897 + $1,005(1 + 0.06)1 (1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4= $3,142,308 / $2,191,876 = 1.4336 yearsBoth the Asset Duration and the Liability Duration increase with the decline in the discount rate, with the Asset Duration increasing by more than the Liability Duration. The Duration Gap increases from 0.1724 years to 0.1781 years, making Casio more sensitive to interest rate changes.Alternative Scenario 2:Given: The appropriate discount rate climbs to 10 percent.What happens to the durations of Casio's earning assets and liabilities? How does the interest rate sensitivity of Casio's total return change as a result of this upward movement in the discount rate?Solution:Casio now has an asset duration of:$1,385,421 * 1 + $746,872 * 2 + $341,555 X 3 + $62,482 * 4 + $9,871 * 5(1 + 0.10)1 (1 + 0.10)2 (1 + 0.10)3 (1 + 0.10)4 (1 + 0.10)5D A=$1,385,421 + $746,872 + $341,555 + $62,482 + $9,871(1 + 0.10)1 (1 + 0.10)2 (1 + 0.10)3 (1 + 0.10)4 (1 + 0.10)5= $3,465,169 / $2,182,144 = 1.5880 yearsCasio now has a liability duration of:$1,427,886 * 1 + $831,454 * 2 + $123,897 * 3 + $1,005 * 4(1 + 0.10)1 (1 + 0.10)2 (1 + 0.10)3 (1 + 0.10)4D L = $1,427,886 + $831,454 + $123,897 + $1,005(1 + 0.10)1 (1 + 0.10)2 (1 + 0.10)3 (1 + 0.10)4= $2,954,385 / $2,079,002 = 1.4211 yearsThe new Duration Gap = 1.5880 – 1.4211 = 0.1669 years.With the increase in the discount rate, both the Asset Duration and the Liability Duration decrease, with the Asset Duration declining by a greater rate than the Liability Duration.The interest sensitivity of the two portfolios, and the bank as a whole, declines, due to the relative degree of change in each portfolio.6-12. Given the cash inflow and outflow figures in Problem 11 for Casio Merchants and Trust Bank, what would happen to the value of Casio's net worth as a result of thismovement in interest rates? If interest rates drop from 8 percent to 7 percent, what happens to Casio's net worth in this case and by how much in dollars does it change?From Problem #11 we find that Casio's average asset duration is 1.5996 years and average liability duration is 1.4272 years. If total assets are $125 million and total liabilities are $110 million, then Casio has a duration gap of:Duration Gap = 1.5996 – 1.4272 * mill.$125mill. $110 = 1.5996 – 1.2559= 0.3437The change in Casio's net worth would be:Change in Value of Net Worth = [-D A * r)(1r +∆* A] – [ - D L * r)(1r +∆* L]If interest rates fall from 8 percent to 7 percent,Change in NW = ⎥⎦⎤⎢⎣⎡+-⎥⎦⎤⎢⎣⎡+mill. $110x .08)(1(-.01) x 1.4272- $125x .08)(1(-.01) x 1.5996-= + 1.8514 – 1.4536 = + 0.3978 million.6-13. Leland National Bank reports an average asset duration of 4.5 years, an average liability duration of 3.25 years. The bank has total assets of $1.8 billion and liabilities totaling $1.5 billion. If interest rates rise from 7 percent to 9 percent, how will Leland's net worth change? What if interest rates fall from 7 to 5 percent?The key formula is:Change in net worth = [-D A * ∆r (1r)+* A] - [ - D L *Dr (1r)+* L]For the change in interest rates from 7 to 9 percent, Leland's net worth will change to:Change in Net Worth =⎥⎦⎤⎢⎣⎡++⎥⎦⎤⎢⎣⎡++mill. $1500x .07)(1.02)( x years 3.25- -mill. x$1800.07)(1.02)( x years 4.5-= -$151.40 million + $91.12 million= -$60.28 millionOn the other hand, if interest rates decline from 7 to 5 percent we have:Change in Net Worth =⎥⎦⎤⎢⎣⎡+⎥⎦⎤⎢⎣⎡+mill. x$1500.07)(1(-.02) x yrs 3.25--mill. x$1800.07)(1(-.02) x yrs 4.5-= + $151.40 mill. - $91.l2 mill. = + $60.28 million.6-（1）A bank holds a bond in its investment portfolio whose duration is 5.5 years. Its current market price is $950. While market interest rates are currently at 8 percent for comparable quality securities, an increase to 10 percent is expected in the coming weeks. What change (in percentage terms) will the bond’s price experience if market interest rates change as anticipated?Solution:percent 10.19-or 1019.)08.1()02(.5.5)1(-=-=+∆-≈∆x i i Dx P PThis bond’s price will decrease by 10.19 percent or its price will decline to $853.6-（2）A bank’s dollar weighted asset durati on is 6 years. Its total liabilities amount to $750 million, while its assets total $900 million. What is the dollar-weighted duration of the bank’s liability portfolio if the bank’s duration gap were zero?Given the bank has a duration gap equal to zero:Duration Gap = AssetsTotal s Liabilitie Total x D - D L Ayears 7.2 $750$900 x 0) - (6 s Liabilitie T otal Assets T otal x Gap)Duration - (D D A L ===6-（3）Commerce National Bank holds assets and liabilities whose average duration and dollar amount are shown as below:What is the dollar-weighted duration of the bank’s asset portfolio and liability portfolio? What is the duration gap?D A = years 4.35 mill.$520mill. $140 x yrs. 4.5 mill. $520mill. $320yrs.x 3.6 mill. $520mill. $60 x yrs. 8.0=++D L = years 1.061 $510$20 x yrs. 0.1 $510$490 x yrs. 1.1=+years 3.31 $520$510 x yrs. 1.061 - yrs. 4.35 Assets T otal s Liabilitie T otal x D - D Gap Duration L A ===6-.（4） A government bond currently carries a yield to maturity of 12 percent for a maturity of 5 years and a current market price of $928. The bond pays $100 in annual interest. If the bond has a par value of $1,000 its duration can be found from:D = ⎥⎦⎤⎢⎣⎡+++++++++543210.12)(1$1100x50.12)(1$100x40.12)(1$100x30.12)(1$100x20.12)(1$100x1 / $928= $928$3837.31 = 4.14 years。
商业银行管理ROSE7e课后答案chapter_
商业银行管理ROSE7e课后答案chapter_CHAPTER 10THE INVESTMENT FUNCTION IN BANKING AND FINANCIAL SERVICES MANAGEMENTGoal of This Chapter: The purpose of this chapter is to discover the types of securities that financial institutions acquire for their investment portfolio and to explore the factors that a manager should consider in determining what securities a financial institution should buy or sell.Key Topics in This ChapterNature and Functions of InvestmentsInvestment Securities Available: Advantages and DisadvantagesMeasuring Expected ReturnsTaxes, Credit, and Interest Rate RisksLiquidity, Prepayment, and Other RisksInvestment Maturity StrategiesMaturity Management T oolsChapter OutlineI. Introduction: The Roles Performed by Investment Securities in Bank PortfoliosII. Investment Instruments Available to Banks and Other Financial FirmsIII. Popular Money-Market InstrumentsA. Treasury BillsB. Short-Term Treasury Notes and BondsC. Federal Agency SecuritiesD. Certificates of DepositE. International Eurocurrency DepositsF. Bankers' AcceptancesG. Commercial PaperH. Short-Term Municipal ObligationsIV. Popular Capital Market InstrumentsA. Treasury Notes and BondsB. Municipal Notes and BondsC. Corporate Notes and BondsIII. Other Investment Instruments Developed More RecentlyA. Structured NotesB. Securitized AssetsC. Stripped SecuritiesIV. Investment Securities Actually Held by BanksV. Factors Affecting the Choice of Investment SecuritiesA. Expected Rate of ReturnB. Tax Exposure1. The Tax Status of State and Local Government Bonds2. Bank Qualified Bonds3. Tax Swapping Tool4. The Portfolio Shifting ToolC. Interest-Rate RiskD. Credit or Default RiskE. Business RiskF. Liquidity RiskG. Call RiskH. Prepayment RiskI. Inflation RiskJ. Pledging RequirementsVI. Investment Maturity StrategiesA. The Ladder or Spaced-Maturity PolicyB. The Front-End Load Maturity PolicyC. The Back-End Load Maturity PolicyD. The Barbell StrategyE. The Rate Expectations ApproachVII. Maturity Management ToolsA. The Yield CurveB. DurationVIII. Summary of the ChapterConcept Checks10-1. Why do banks and institutions choose to devote a significant portion of their assets to investment securities?Investments perform many different roles that act as a necessary complement to the advantages loans provide. Investments generally have less credit risk than loans, allow the bank or thrift institution to diversify into different localities than most of its loans permit, provide additional liquid reserves in case more cash is needed, provide collateral as called for by law and regulation to back government deposits, help to stabilize bank income over the business cycle, and aid banks in reducing their exposure to taxes.10-2. What key roles do investments play in the management of a bank or other depository institution?See answer to 10-110-3. What are the principal money market and capital market instruments available to institutions today? What are their most important characteristics?Banks purchase a wide range of investment securities. The principal money market instruments available to banks today are Treasury bills, federal agency securities, CD's issued by other depository institutions, Eurodollar deposits, bankers' acceptances, commercial paper, and short-term municipalobligations. The common characteristics of most these instruments is their safety and high marketability. Capital market instruments available to banks include Treasury notes and bonds, state and local government notes and bonds, mortgage-backed securities, and corporate notes and bonds. The characteristics of these securities is their long run income potential.10-4. What types of investment securities do banks prefer the most? Can you explain why?Commercial banks clearly prefer these major types of investment securities: United States Treasury securities, federal agency securities, and state and local government (municipal) bonds and notes. They hold small amounts of equities and other debt securities (mainly corporate notes and bonds). They pick these types because they are best suited to meet the objectives of a banks investment portfolio, such as tax sheltering, reducing overall risk exposure, a source of liquidity and naturally generating income as well as diversifying their assets.10-5. What are securitized assets? Why have they grown so rapidly in recent years?Securitized assets are loans that are placed in a pool and, as the loans generate interest and principal income, that income is passed on to the holders of securities representing an interest in the loan pool. These loan-backed securities are attractive to many banks because of their higher yields and frequent federal guarantees (in the case, for example, of most home-mortgage-backed securities) as well as their relatively high liquidity and marketability10-6. What special risks do securitized assets present to institutions investing in them?Securitized assets often carry substantial interest-rate riskand prepayment risk, which arises when certain loans in the securitized-asset pool are paid off early by the borrowers (usually because interest rates have fallen and new loans can be substituted for the old loans at cheaper loan rates) or are defaulted. Prepayment risk can significantly decrease the values of securities backed by loans and change their effective maturities.10-7. What are structured notes and stripped securities? What unusual features do they contain?Structured notes usually are packaged investments assembled by security dealers that offer customers flexible yields in order to protect their customers' investments against losses due to inflation and changing interest rates. Most structured notes are based upon government or federal agency securities.Stripped securities consist of either principal payments or interest payments from a debt security. The expected cash flow from a Treasury bond or mortgage-backed security is separated into a stream of principal payments and a stream of interest payments, each of which may be sold as a separate security maturing on the day the payment is due. Some of these stripped payments are highly sensitive to changes in interest rates.10-8. How is the expected yield on most bonds determined?For most bonds, this requires the calculation of the yield to maturity (YTM) if the bond is to be held to maturity or the planned holding period yield (HPY) between point of purchase and point of sale. YTM is the expected rate of return on a bond held until its maturity date is reached, based on the bond's purchase price, promised interest payments, andredemption value at maturity. HPY is a rate of discount bringing the current price of a bond in line with its stream ofexpected cash inflows and its expected sale price at the end of the bank's holding period.10-9. If a government bond is expected to mature in two years and has a current price of $950, what is the bond's YTM if it has a par value of $1,000 and a promised coupon rate of 10 percent? Suppose this bond is sold one year after purchase for a price of $970. What would this investor's holding period yield be?The relevant formula is:$950 = 221Y TM) 1(1000$Y TM) (1$100 Y TM) 1(100$+++++ Using a financial calculator we get:YTM = 12.99%If the bond is sold after one year, the formula entries change to:$950 = 11Y TM) (1$970 Y TM) 1(100$+++and the YTM is:YTM = 12.63%10-10. What forms of risk affect investments?The following forms of risk affect investments: interest-rate risk, credit risk, business risk, liquidity risk, prepayment risk, call risk, and inflation risk. Interest-rate risk captures the sensitivity of the value of investments to interest-rate movements, while credit risk reflectsthe risk of default on either interest or principal payments. Business risk refers to the impact of credit conditions and the economy, while liquidity risk focuses on the price stability and marketability of investments. Prepayment risk is specific to certain types of investments and focuses on the fact that some loans which the securities are based on can be paid off early. Call risk refers to the early retirement of securities and inflation riskrefers to their possible loss of purchasing power.。
商业银行管理学课后题答案
第一章商业银行：商业银行是以追求利润最大化为目标，以多种金融欠债筹集资本，以多种金融财富为其经营对象，能利用欠债进行信用创建，并向客户供应多功能、综合性服务的金融公司。
信用中介：是指商业银行经过欠债业务，把社会上各样闲散钱币资本集中到银行，经过财富业务，把它投向需要资本的各部门，充任有闲置资本者和资本欠缺者之间的中介人，实现资本的融通。
作用：使闲散的钱币转变为资本、使闲置资本获取充分利用、续短为长，知足这会对长久资本的需要。
支付中介：是指商业银行利用活期存款账户，为客户办理各样钱币结算、钱币收付、钱币兑换和转移存款等业务活动。
CAMELS：美国联邦贮备委员会对商业银行看管的分类检查制度，这种分类检查制度的主要内容是把商业银行接受检查的范围分为六大类：资本（ capital）、财富（ asset ）、管理（ management）、利润（ earning ）、流动性（ liquidity）和对市场风险的敏感性（ sensitivity）。
分行制：分行制银行是指那些在总行之下，可在当地或外处设有若干分支机构，并能够从事银行业务的商业银行。
这种商业银行的总部一般都设在多半市，部下所有分支行须由总行领导指挥。
长处：第一，有益于银行汲取存款，有益于银行扩大资本总数和经营规模，能获得规模经济效益。
第二，便于银履行用现代化管理手段和设施，提升服务质量，加快资本周转速度。
第三有益于银行调理资本、转移信用、分别和减少多种风险。
第四，总专家数少，有益于国家控制和管理，其业务经营受地方政府干涉小。
第五，因为资本根源宽泛，有益于提升银行的竞争实力。
弊端：简单加快垄断的形成；并且因为其规模大，内部层次许多，使银行管理的难度增添等。
流动性：指财富变现的能力，商业银行保持随时能以适合的价钱去的可用资本的能力，以便随时对付客户提存以及银行其余支付的需要。
其权衡指标有两个：一是财富变现的成本，二是财富变现的速度。
4.成立商业银行制度的基根源则有哪些？为何要确定这些原则？答：（一）有益于银行业竞争。
商业银行管理Bank Managment&Financial Services(7th)第17章课后题答案
CHAPTER 17LENDING TO BUSINESS FIRMS AND PRICING BUSINESS LOANSGoal of This Chapter: The purpose of this chapter is to explore how bankers can respond to a business customer seeking a loan and to reveal the factors they must consider in evaluating a business loan request. In addition, we explore the different methods used today to price business loans and to evaluate the strengths and weaknesses of these pricing methods for achieving a financial institution’s goals.Key Topics in This Chapter∙Types of Business Loans: Short-Term and Long-Term∙Analyzing Business Loan Requests∙Collateral and Contingent Liabilities∙Sources and Uses of Business Funds∙Pricing Business Loans∙Customer Profitability AnalysisChapter OutlineI. IntroductionII. Brief History of Business LendingIII. Types of Business LoansIV. Short-Term Loans to Business FirmsA. Self-Liquidating Inventory LoansB. Working-Capital LoansC. Interim Construction FinancingD. Security-Dealer FinancingE. Retailer and Equipment FinancingF. Asset-Based FinancingG. Syndicated LoansV. Long-Term Loans to Business FirmsA. Term Business LoansB. Revolving Credit FinancingC. Long-Term Project LoansD. Loans to Support Acquisitions of Other Business FirmsVI. Analyzing Business Loan ApplicationsA. Most Common Sources of Loan RepaymentB. Analysis of a Business Borrower's Financial StatementsVII Financial Ratio Analysis of a Customer's Financial StatementsA. The Business Customer's Control Over ExpensesB. Operating Efficiency: Measure of a Business Firm's Performance Effectiveness230C. Marketability of the Customer's Product or ServiceD. Coverage Ratios Measuring the Adequacy of EarningsE. Liquidity Indicators for Business CustomersF. Profitability IndicatorsG. The Financial Leverage Factor as a Barometer of a Business Firm's CapitalStructureVIII Comparing a Business Customer’s performance to the Performance of Its IndustryA.Contingent LiabilitiesB.Environmental LiabilitiesIX. Preparing Statements of Cash Flows from Business Financial StatementsA. Cash Flow StatementsB. Pro Forma Statements of Cash Flow and Balance SheetsC. The Loan Officer's Responsibility to the Lending Institution and the Customer X. Pricing Business LoansA.The Cost-Plus Loan pricing MethodB.The Price Leadership ModelC.Below-Prime Market PricingD.Customer Profitability Analysis (CPA)1.An Example of Annualized Customer profitability Analysis2.Earnings Credits for Customer Deposits3.The Future of Customer Profitability AnalysisXI. Summary of the ChapterConcept Checks17-1. What special problems does business lending present to the management of a business lending institution?While business loans are usually considered among the safest types of lending (their default rate, for example, is usually well below default rates on most other types of loans), these loans average much larger in dollar volume than other loans and, therefore, can subject an institution to excessive risk of loss and, if a substantial number of loans fail, can lead to failure. Moreover, business loans are usually much more complex financial deals than most other kinds of loans, requiring larger numbers of personnel with special skills and knowledge. These additional resources required increase the magnitude of potential losses unless the business loan portfolio is managed with great care and skill.23117-2. What are the essential differences among working capital loans, open credit lines,asset-based loans, term loans, revolving credit lines, interim financing, project loans, and acquisition loans?a. Working Capital Loans -- Loans to fund the current assets of a business, such asaccounts receivable, inventories, or to replenish cash.b. Open Credit Lines -- A credit agreement allowing a business to borrow up to aspecified maximum amount of credit at any time until the point in time when thecredit line expires.c. Asset-based Loans -- Credit whose amount and timing is based directly upon thevalue, condition, and maturity of certain assets held by a business firm (such asaccounts receivable or inventory) with those assets usually being pledged ascollateral behind the loan.d. Term Loans -- Business loans that have an original maturity of more than one yearand normally are used to fund the purchase of new plant and equipment or toprovide for a permanent increase in working capital.e. Revolving Credit Lines -- Lines of credit that promise the business borrower accessto any amount of borrowed funds up to a specified maximum amount; moreover,the customer may borrow, repay, and borrow again any number of times until thecredit line reaches its maturity date.f. Interim Financing -- Bank funding to start construction or to complete constructionof a business project in the form of a short-term loan; once the project is completed,long-term funding will normally pay off and replace the interim financing.g. Project Loans -- Credit to support the start up of a new business project, such as theconstruction of an offshore drilling platform or the installation of a new warehouseor assembly line; often such loans are secured by the property or equipment that arepart of the new project.h. Acquisition Loans--Loans to finance mergers and acquisitions of businesses.Among the most noteworthy of these acquisition credits are leveraged buyouts offirms by small groups of investors.17-3. What aspects of a business firm's financial statements do loan officers and credit analysts examine carefully?232Loan officers and credit analysts examine the following aspects of a business firm's financial statements:a. Control Over Expenses? Key ratios here include cost of goods sold/net sales;selling, administrative and other expenses/net sales; wages and salaries/net sales;and interest expenses on borrowed funds/net sales.b. Activity or Efficiency? Important ratios here are net sales/total assets, and fixedassets, accounts and notes receivable, and cost-of-goods sold divided by averageinventory levels.c. Marketability of a Product, Service, or Skill? Key ratio measures in this area are thegross profit margin, or net sales less cost of goods sold to net sales, and the netprofit margin, or net income after taxes to net sales.d. Coverage? Important measures here include interest coverage (such as before-taxincome and interest payments divided by total interest payments), coverage ofinterest and principal payments (such as earnings before interest and taxes dividedby annual interest payments plus principal payments adjusted for the tax effect),and the coverage of all fixed payments (such as before-tax income plus interestpayments plus lease payments divided by interest payments plus lease payments).e. Profitability Indicators? Key barometers in this area can include such ratios asbefore-tax net income divided by total assets, net worth, or sales, and after-tax netincome divided by total assets, net worth, or total sales.f. Liquidity Indicators? Important ratio measures here usually include the currentratio (current assets divided by current liabilities), and the acid-test liquidity ratio(current assets less inventories divided by current liabilities).g. Leverage indicators? Ratios indicating trends in this dimension of businessperformance usually include the leverage ratio (total liabilities/total assets or networth), the capitalization ratio (of long-term debt divided by total long-termliabilities and net worth), and the debt-to-sales ratio (of total liabilities divided bynet sales).One problem with employing ratio measures of business performance is that they only reflect symptoms of a possible problem but usually don't tell us the nature of the problem or its causes. Management must look much more deeply into the reasons behind any apparent trend in a ratio. Moreover, any time the value of a ratio changes, that change could be due to a shift in the numerator of the ratio, in the denominator, or both.23317-4. What aspect of a business firm's operations is reflected in its ratio of cost of goods sold to net sales? In its ratio of net sales to total assets? In its GPM ratio? Its ratio of income before interest and to taxes to total interest payments? Its acid-test ratio? In its ratio of before-tax net income to net worth? Its ratio of total liabilities to net sales? What are the principal limitations of these ratios? The ratio of cost of goods sold to net sales is a widely used indicator of a business firm's expense controls and operating efficiency. The ratio of net sales to total assets reflects activity or efficiency, while the gross profit margin (GPM) measure reflects the marketability of a business's products or services. A firm's ratio of income before interest expense and taxes indicates how effectively a business is covering its interest expenses through the generation of before-tax income. Theacid-test ratio provides a rough measure of a firm's liquidity position, while the ratio of before-tax income to net worth represents a measure of profitability. Finally, the ratio of liabilities to sales is an indicator of management's use of financial leverage. These ratios are affected by changes in the numerator or the denominator or both; a financial or credit analyst would want to know the source of any change in a ratio's value. These ratios only measure problem symptoms; you must dig deeper to find the cause.17-5. What are contingent liabilities and why might they be important in deciding whether to approve or disapprove a business loan request?Contingent liabilities include such pending or possible future obligations as lawsuits against a business firm, and warranties or guarantees the firm has given to others regarding the quality, safety, or performance of its product or service. Another example is a credit guaranty in which the firm may have pledged its assets or credit to back up the borrowings of another business, such as a subsidiary. Environmental damage caused by a business borrower also has recently become of great concern as a contingent liability for many banks because a bank foreclosing on business property for nonpayment of a loan could become liable for cleanup costs, especially if the bank becomes significantly involved with a customer's business or treats foreclosed property as an investment rather than a repossessed asset that is quickly liquidated to recover the unpaid balance on a loan. Loan officers must be aware of all contingent liabilities because any or all of them could become due and payable claims against the business borrower, weakening the firm's ability to repay its loan to the bank.17-6. What is cash flow analysis and what can it tell us about a bus iness borrower’s financial condition and prospects?A cash flow statement shows the changes in a business firm's assets and liabilities as well as its flow of net profit and noncash expenses (such as depreciation) over a specific time period. It shows where the firm raised its operating capital during the time period under examination and how it spent or used those funds in acquiring assets or paying down liabilities. From the perspective of a loan officer the cash flow statement indicates whether the firm is relying heavily upon borrowed funds and sales of assets. These are two less desirable funding sources from the point of view of lending money to a business firm. In contrast, loan officers usually prefer to focus upon cash flow - whether the firm is generating sufficient cash flow (net income plus noncash expenses) to repay most of its debt.23417-7. What is a pro forma statement of cash flows and what is its purpose?A pro forma statement of cash flows estimates the borrower’s future cash flows. I t is supposed to provide insight into the future cash flows of the borrower and its ability to repay the loan.17-8. Should a loan officer ever say no to a business firm requesting a loan? Please explain when and where.Loan officers will inevitably be confronted with some loan requests that will have to be flatly rejected, particularly in those cases where the borrower has falsified information or has a credit history of continually "walking away" from debt obligations. Even in these cases, however, the loan officer should be as polite as possible, suggesting to the customer what needs to be changed or improved for the future to permit the customer to be seriously considered for a loan.17-9. What methods are used today to price business loans?The following methods are in use today to price business loans:a. Cost-plus pricing d. Customer Profitability Analysisb. Price leadership pricing modelc. Below prime market pricingCost-plus-profit pricing requires the bank to estimate the total cost involved in making aloan and then adds to that cost estimate a small margin for profit.The price-leadership model, on the other hand, bases the loan rate upon a national or international rate (such as prime or LIBOR) posted by major banks and then adds a small increment on top for profit or risk.The below prime market prices a loan on the basis of cost of borrowing in the money market plus a small profit margin.Customer profitability analysis looks at all the revenues and costs involved in serving a customer and then requires the bank to calculate the net rate of return from this particular customer.17-10. Suppose a bank estimates that the marginal cost of raising loanable funds to make a $10 million loan to one of its corporate customers is 4 percent, its nonfunds operating costs to evaluate this loan are 0.5 percent, the default risk premium on the loan is 0.375 percent, a term risk premium of 0.625 percent is to be added, and the bank’s desired profit margin is 0.25 percent. What loan rate should be quoted this borrower? How much interest will the borrower pay in a year?235The loan rate quoted for this $10 million corporate loan would be:Loan Rate = 4 percent Loan Funds Cost + .5 percent Non-funds Operating Cost+ .375 percent default risk premium+ .625 percent term risk premium+ .25 percent profit margin= 5.75 percentBased on a $10 million loan this customer will pay in interest in a year:$10,000,000*.0575 = $575,000.17-11. What are the principal strengths and weaknesses of the different loan-pricing methods in use?Cost plus pricing is the simplest loan pricing model. However, it assumes that a lending institution can accurately know what its costs are and often they don’t.Price leadership overcomes the problems of accurately predicting what the costs of a loan will be to a lending institution. However, it is still difficult to assign risk premiums to loans. In addition, using something like the prime rate as the base rate has been challenged by LIBOR and other market based rates.Below prime market pricing uses LIBOR as the base rate and includes only a small profit margin as part of the loan price. This works well for short term loans for large, well known corporations but is not generally used for small and medium sized companies or longer term loans Customer profitability analysis is similar to cost plus pricing but differs in that it considers the whole customer relationship into account when pricing a loan. Customer profitability analysis has become increasingly sophisticated as computer models have been designed to help with the analysis.17-12. What is customer profitability analysis? What are its advantages for the borrowing customer and the lender?Customer profitability analysis is a loan pricing metho d that takes into account the lender’s entire relationship with the customer when pricing the loan. It is based on the difference between revenues from loans and other services provided and expenses from providing loans and other services is taken over net loanable funds. Net loanable funds are those funds used in excess of the customer’s deposits. If the calculated net rate of return from a customer’s relationship is positive the loan is made and if it is not, the rate is raised or the loan is not made. Because it takes the entire relationship into account it gives a better picture of what customer relationships are profitable. The chief problem with it is that it is a more complex model and takes an accurate picture of all of the relationships the lender has with the customer. It has also become increasingly complex as computer systems have put in place to help with the analysis of the total relationship a customer has with a lender.236Problems17-1. From the descriptions below please identify what type of business loan is involved.Based upon the descriptions given in the text the type of business loan being discussed is:A. Interim construction financing.B. Retailer financing or floorplanning loan.C. Asset-based financing or factoring.D. Self-liquidating inventory loan.E. Working capital loan.F. Security capital loan.G. Term loan.H. Acquisition loan or leveraged buyout.I. Revolving credit line.J. Project loan.17-2. As a new credit trainee for Evergreen National Bank, you have been asked to evaluate the financial position of Hamilton Steel Castings, which has asked for renewal of and an increase in its 6-month credit line. Hamilton now requests a $7 million credit line and you must draft your first credit opinion for a senior credit analyst. Unfortunately, Hamilton just changed management, and its financial report for the last six months was not only late but also garbled. As best as you can tell, its sales, assets, operating expenses, and liabilities for the six month period concluded display the following patterns (see textbook). Hamilton has a 16 year relationship with the bank and has routinely received and paid off a credit line of $4 to $5 million. The department’s senior analyst tells you to prepare because you will be asked for your opinion of this loan request (though you have been led to believe the loan will be approved anyway, because Hamilton’s president serves on Evergreen’s board of directors).What will you recommend if asked? Is there any reason to question the latest data supplied by this customer? If this loan request is granted what do you think the customer will do with the funds?The figures given in the case as well as the supporting background information suggest several developing problems. Hamilton has had a recent shakeup in its senior management, which usually leads to looser control of the firm until the new management gains sufficient experience. Among the obvious problems are declines in sales (from $48.1 million to $39.7 million) in the past six months. Hamilton's cost of goods sold dropped but by less than the decline in sales, thereby squeezing the firm's margin and net income. We note too that the firm, faced with declining cash flows, has been forced to rely more heavily on borrowings which will mean that the bank's position will be less secure. Current assets have also declined while current liabilities are on the rise, thus reducing the firm's net liquidity position. The bank's relationship with Hamilton needs to be reviewed carefully with an eye to gaining additional collateral or reducing the bank's total credit commitment to the firm.237Additional information that would be desirable and helpful, if not essential, should include:1) Past financial statements for the last two or three years, preferably on a monthlybasis. This could help us verify seasonality and improvement.2) Industry outlook for the next six to eighteen months would also help in reinforcingHamilton's ability to service the debt from the summer and fall cash flows.3) Additionally, information about the company's suppliers, other creditors,customers, and competitors would be helpful.4) Also, more information about other relationships that Hamilton has with Evergreenwould certainly be helpful.In summary, the more information we have, the better our analysis and subsequent decisions will be.17-3. From the data given in the following table (see textbook), please construct as many of the financial ratios discussed in this chapter as you can and then indicate the dimension of a business firm’s performance each ratio represents.238239 Among the many financial ratios that could be computed given the data in this problem are the following:Expense Control Ratios Operating Efficiency MeasuresWages and Salaries = 61 = .0897 Inventory Turnover Ratio = 520 = 4.81 x Net Sales 680 108Overhead Expenses = 29 = .0426 Net Sales/ = 680 1.115 x Net Sales 680 Total Assets 610Depreciation Expenses = 15 = .0221 Net Sales/ = 680 = 2.26 x Net Sales 680 Fixed Assets 301Interest Expense = 18 = .0265 Net Sales/Accounts = 680 = 7.16 x Net Sales 680 Receivable 95Cost of Goods Sold/ = 520 = .7647 Average = 95 / 680 /360 = 50.29 days Net Sales 680 Collection PeriodTaxes/Net Sales = 2 / 680 = .0029 Marketability IndicatorsCoverage Ratios GPM = 680 – 520 = .2353 680Interest Coverage = 25 = 1.39 x18 NAM = 5 = .0074680Coverage of Principal and Interest Payments = 24.36% .35)- (155 1825=+Profitability Measures Liquidity IndicatorsBefore-Tax Net Income/ = 7 = .0115 Current Ratio = $213 = 1.121 xTotal Assets 610 $190After-Tax Net lncome/ = 5 = .0082 Acid-Test Ratio= $213 - $108 = .55 xTotal Assets 610 $190Before-Tax Net Income/ = 7 = .0875 N et Liquid Assets = $213 - $108 -Net Worth or Equity 80 $190 = - 85CapitalNet Working Capital = $213 - $190 After-Tax Net lncome/= 5 = .0625 = $23Net Worth or Equity 80CapitalLeverage RatiosBefore-Tax Net Income/ = 7 = .0103 Total Liabilities/Total 530 = .8689 Sales 680 Assets = 610 After-Tax Net lncome/ = 5 = .0074 Long-Term debt = 325 = .8025Sales 680 Long-Term Liabilities 405Debt-to-Sales Ratio = Total Liabilities = 530 = .7794Net Sales 68017-4. Conway Corporation has placed a term loan request with its lender and submitted the following balance sheet entries for the year just concluded and the pro forma balance sheet expected by the end of the current year. Construct a pro forma Statement of Cash Flows for the current year using the consecutive balance sheets and some additional needed information. The forecast net income for the current year is $217 million with $65 million being paid out in dividends. The depreciation expense for the year will be $100 million and planned expansions will require the acquisition of $300 million in fixed assets at the end of the current year. As you examine the pro forma Statement of Cash Flows, do you detect any changes that might be of concern either to the lender’s credit analyst, loan officer, or both?240The Sources and Uses of Funds Statement for Conway Corporation would appear as follows: Cash Flows from OperationsNet income 217Add: Depreciation 100Subtract: increase in acc/rec (192)Subtract: increase in inventory (79)Subtract: increase in other assets (21)Add: increase in accounts payable 103Subtract: decrease in taxes payable (111)Net cash flow from operations 17Cash Flows from Investment ActivitiesAcquisition of fixed assets (300)Net cash flow from investment activities (300)Cash Flows from Financing ActivitiesIncrease in notes payable 217Increase in long term debt 59Dividends paid (65)Net Cash Flows from Financing Activities 211Increase (Decrease) in Cash (72)There are several areas of possible concern for a bank loan officer viewing Conway's projected figures. First, the firm is relying heavily upon increasing debt of all kinds to finance its growth in assets. The increase in notes payable of $217 million indicates growing reliance on bank debt supplemented by sizable increases in supplier-provided credit (accounts payable) and long-term debt obligations (most likely, bonds) with no change in funds provided by issuing stock. The bank could experience a serious weakening in the strength of its claim against the firm as other creditors post a more substantial claim against Conway's assets.Conway is projecting a sizable increase in its retained earnings (undivided profits) which suggests that management is counting on a year of strong earnings. However, both accounts receivable and inventories (as well as net fixed assets) are growing rapidly, perhaps reflecting troubles in collecting from the firm's customers and in marketing Conway's products and services. The bank's loan officer would want to explore with the company the bases for its projected jump in net income and why accounts receivable and inventories are expected to rise in such large amounts.24124217-5 Morbet Corporation is an new business client for First Commerce National Bank and has asked for a one-year, $10 million loan at an annual interest rate of 7 percent. The company plans to keep a 5 percent $2 million CD with the bank for the loan’s duration. The loan officer in charge of the case recommends at least an 8 percent annual before tax rate of return over all costs. Using Customer Profitability Analysis (CPA) the loan committee hopes to estimate the followingrevenues and expenses which it will project using the amount of the loan requested as a base for the calculations:Estimated Revenues:Interest Income from Loan $10,000,000*.07 = $700,000Loan Commitment Fee $10,000,000*.01 = $100,000Cash Management Fee $10,000,000*.03 = $300,000Trust Service Fee $10,000,000*.02 = $200,000Total Revenues $1,300,000Estimated Expenses:Interest on Deposit $2,000,000*.05 = $100,000Expected Cost of Additional Funds $10,000,000*.03 = $300,000Labor Costs and Other Operating Costs $10,000,000*.02 = $200,000Costs of Processing the Loan $10,000,000*.015 = $150,000Total Expenses $750,000Net Before Taxes Rate of Return = 6.875%or 06875.000,000,8$000,750$000,300,1$=- a. Should this loan be approved on the basis of the suggested terms?No, it should not because the bank is earning less than the 8 percent annual before tax rate of return.b. What adjustments could be made to improve this loan’s projected return?The fees that are charged could be made higher and the lender could try and find a way to reduce the expenses on the loan. Both of these would have the effect of increasing the rate of return on the loan.c. How might competition from other prospective lenders impact the adjustments you have recommended?In particular, it would be difficult to raise fees for this customer if they can get these same services from other lenders more cheaply. It would not necessarily cause a direct impact on expenses but other lenders might already be more efficient in providing these services and they may already be charging a lower interest rate on this loan based on the customer profitability analysis.17-6. As a loan officer for Starship National Bank, you have been responsible for the bank’s relationship with USF Corporation, a major producer of remote control devices for activating television sets, VCRs, and other audio video equipment. USF has just filed a request for renewal of its $10 million line of credit, which will cover approximately 10 ½ months. USF also regularly uses several other services sold by the bank. Applying the Customer Profitability Analysis and using the most recent year as a guide, you estimate that the expected revenues from this commercial loan customer and the expected costs of serving this customer will consist of the following (see textbook).The bank’s credit analy sts estimated the customer will probably keep an average deposit balance of $2,125,000 for the year the line is active. What is the expected net rate of return from this proposed loan renewal if the customer actually draws down the full amount of the requested line? What decision should the bank make under the foregoing assumptions? If you decide to turn down this request, under what assumptions regarding revenues, expenses, and customer- deposit balances would you be willing to make this loan?The expected revenues and costs from continuing the present relationship between Enterprise National Bank and USF Corporation were given in this problem and the reader is asked to estimate the expected net rate of return if the bank renews its loan to USF.The total of expected revenues and expected costs is:Expected Revenues Expected CostsInterest Revenue $700,000 Deposit Interest $ 106,250 Commitment Fees 100,000 Cost of Other Funds Raised 475,000 Deposit Service 4,500 Wire Transfer Costs 1,300 (Maintenance) Fees Loan Processing Costs 12,400 Wire Transfer Fees 3,500 Record keeping Expenses 4,500 Agency Fees 8,800 Account Activity Cost 19,000 Total Expected $816,800 Total Expected Costs $ 618,450 RevenuesGiven: Total Expected Revenues = $816,800Total Expected Costs = $618,450Net Revenue = $816,800 - $618,450 = $198,350Net Funds Loaned = $10,000,000 - $2,125,000 = $7,875,000Expected Net Rate of Return = $198,350/ $7,875,000 = .0252 or 2.52%Because the estimated net rate of return is positive, the bank should strongly consider approving the loan as requested because the bank can earn a premium over its costs.If you decide to turn down this request, under what assumptions regarding revenues, expenses, and customer-maintained deposit balances would you make this loan?243。
商业银行管理Bank Managment&Financial Services(7th)第12章课后题答案
CHAPTER 12MANAGING AND PRICING DEPOSIT SERVICESGoal of This Chapter: This chapter has multiple goals. One of the most important is to learn about the different types of deposits financial institutions offer and, from the perspective of a manager, to discover which types of deposits are among the most profitable to offer their customers. We also want to explore how an institution’s cost of funding can be determined and examine the different methods open to institutions to price the deposits and deposit-related services they sell to the public.Key Topics in This Chapter•Types of Deposit Accounts Offered•The Changing Mix of Deposits and Deposit Costs•Pricing Deposit Services and Deposit Interest Rates•Conditional Deposit Pricing•Rules for Deposit Insurance Coverage•Disclosure of Deposit Terms•Lifeline BankingChapter OutlineI. Introduction: The Importance of Deposits and the Challenge of Managing DepositsII. Types of Deposits Offered by Banks and Other Depository InstitutionsA. Transaction (Payments) Deposits1. Noninterest-Bearing Demand Deposits2. Interest-Bearing Demand Depositsa. NOW Accountsb. Money Market Deposit Accounts (MMDAs)c. Super NOWsB. Nontransaction (Savings or Thrift) Deposits1. Passbook Savings Deposits2. Statement Savings Deposits3. Time Deposits4. Individual Retirement Accounts (IRAs)5. Keogh Plans6. Roth IRAsIll. Interest Rates Offered on Different Types of DepositsA. The Composition of Bank Deposits1. Trend Toward Interest-Bearing and Nontransaction Deposits2. The Importance of Core Deposits3. Changes in the Relative Importance of Other Types of Deposits163B. Cost of Different Deposit AccuntsIV. Pricing Deposit-Related ServicesV. Pricing Deposits at Cost Plus Profit MarginA. Estimating Deposit Service CostsB. An Example of Pooled Funds CostingVI. Using Marginal Cost to Set Interest Rates on DepositsA. Conditional PricingVII. Pricing Deposits Based on the Total Customer RelationshipA. The Role That Pricing and Other Factors Play When Customers Choose aDepository Institution to Hold Their AccountsVIII. Basic (Lifeline) Banking: Key Services for Low-Income CustomersIX. Summary of the ChapterConcept Checks12-1. What are the major types of deposit plans depository institutions offer today?Deposit plans can be divided broadly into transaction deposits, thrift or nontransaction deposits, and hybrid deposits. The primary function of transaction deposits is to make payments and these deposits include regular checking accounts and NOW accounts. The principal function of thrift deposits is to serve as accumulated savings and include passbook and statement savings accounts, CDs, and other time deposit accounts. Hybrid deposits combine transactions and thrift features and include money-market deposit accounts and Super NOWs.12-2. What are core deposits and why are they so important today?Core deposits are the most stable components of a depositary institution’s funding base and usually include smaller-denomination savings and third-party payments accounts. They are characterized by relatively low interest-rate elasticity. Holding a substantial proportion of core deposits has an advantage in having access to a stable and cheaper source of funding with relatively low interest-rate risk.12-3. How has the composition of deposits changed in recent years?There has been a shift in the public’s holdings of deposits toward greater relative proportions of the highest-yielding time deposits and toward hybrid accounts that maximize depositor returns, while still giving them access to deposited funds to make payments.12-4. What are the consequences for the management and performance resulting from recent changes in deposit composition?While depository institutions would prefer to sell only the cheapest deposits to the public, it is predominately public preference that determines which types of deposits will be created. Institutions that do not wish to conform to customer preferences will simply be outbid for deposits by those who do. Managers who fail to stay abreast of changes in their competitors’ deposit pricing and marketing programs stand to lose both customers and profits.16412-5. Which deposits are the least costly for depository institutions? The most costly?Commercial checkable deposits, particularly regular noninterest bearing demand deposits, are usually the least costly. The most costly deposits are passbook savings accounts having substantial deposit and withdrawal activity and higher interest-rate time deposits.12-6. First State Bank of Pine is considering a change of marketing strategy in an effort to lower its cost of funding and maximize profitability. The new strategy calls for aggressive advertising of new commercial checking accounts and interest-bearing household checkable deposits andde-emphasizes regular and special checking accounts. What are the possible advantages and possible weaknesses of this new marketing strategy?The cost data presented in the text suggest that certain kinds of checkable deposits are often among the least-cost deposits a bank can sell (especially because of low or nonexistent interest rates paid) so First State Bank may be able to achieve some of its profit and cost goals with the proposed new strategy. Moreover, adjusted for revenues generated through the use of deposited funds, interest-bearing checking accounts appear to be more profitable than regular (noninterest-bearing) accounts and commercial checking services more profitable than retail (personal) checking services. However, the deposit services that First State Bank wants to pursue more aggressively tend to be more interest-sensitive and less loyal to a bank and, thus First State Bank may be adding to its liquidity problem with the new strategy.12-7. Describe the essential differences between the following deposit pricing methods in use today: cost-plus pricing, conditional pricing, and relationship pricing?Cost-plus deposit pricing encourages banks to determine what costs they are incurring in labor and management time, materials, etc., in offering each deposit service. Cost-plus pricing generally calls for a bank to charge deposit service fees adequate to cover all the costs of offering the service plus a small margin for profit. Conditional pricing is used today as a tool by banks to attract the kinds of depositors they want to have as customers. With this pricing technique a bank will post a schedule of offered interest rates or fees assessed for deposits of varying sizes and based on account activity. Generally larger volume deposits carry higher interest returns to the depositor or are assessed lower service charges, encouraging customers to hold a high average deposit balance which gives the bank more funds to invest in earning assets. Finally, relationship pricing involves basing fees charged a customer on the number of services and the intensity of use of services the customer purchases from a bank.12-8. A bank determines from an analysis of its cost-accounting figures that for each $500 minimum-balance checking account it sells account processing and other operating costs will average $4.87 per month and overhead expenses will run an average of $1.21 per month. The bank hopes to achieve a profit margin over these particular costs of 10 percent of total monthly costs. What monthly fee should the bank charge a customer who opens one of these checking accounts?165The relevant formula is:Unit Price Operating Overhead PlannedCharged = Expense + Expense + Profit Marginper Month Per Unit Per Unit Per UnitIn this case:Unit Price Charged Per Month = $4.87 + $1.21 + 0.10 x ($4.87 + $1.21) = $6.6912-9. To price deposits successfully, service providers must know their costs. How are these costs determined using the historical average cost approach? The marginal cost of funds approach? What are the advantages and disadvantages of each approach?The historical average cost approach looks at the past. It asks the following question:what funds has the bank raised to date and what did they cost? The marginal cost deposit-pricing method focuses upon the weighted average cost of new funds raised from all of the different sources of funds the bank draws upon or plans to draw upon in the current period.12-10. How can the historical average cost and marginal cost of funds approaches be used to help select assets (such as loans) that a depository institution might wish to acquire?The historical average cost rate is called break-even because the institution must earn at least this rate on its earning assets (primarily loans and securities) just to meet the total operating costs of raising borrowed funds and the stockholders' required rate of return. Therefore, the institution will know the lowest rate of return that it can afford to earn on assets it might wish to acquire. The marginal cost of funds approach can be used as a guide to select loans and other assets because the institution interested in profit maximizing would want to be sure to cover its fund-raising costs.12-11. What factors do household depositors rank most highly in choosing a financial firm for their checking account? Their savings account? What about business firms?Studies cited in this chapter indicate that households (individuals and families) appear to consider, in rank order, the following factors in choosing an institution to hold their checking account: convenient location, availability of other services, safety, low fees and low minimum balances, and high deposit interest rates. In selecting an institution to hold their savings account households appear to consider, in rank order: familiarity, interest rate paid, transactional convenience, location, availability of payroll deduction, and any fees charged. Business firms, on the other hand, seem to consider such factors as the financial health of the lending institution, whether the institution will be a reliable source of credit in the future, the quality of managers, whether loans are competitively priced, the quality of financial advice given, and whether cash management and operations services are provided.12-12. What does the 1991 Truth in Savings Act require financial firms selling deposits inside the United States to tell their customers?166167The Truth in Savings Act requires financial firms to fully inform their deposit customers on the terms offered each depositor. The customer must be told when a new account is opened or if a deposit is renewed, what annual percentage yield (APY) is being offered and what minimum balance is required to receive that yield. Moreover, the depositor must be informed about any penalties or service fees which could reduce his or her expected yield. If the terms of a deposit are changed in a way that would reduce the depositor's return advance notice must be given to the account holder.12-13. Using the APY formula required by the Truth in Savings Act for the following calculation. Suppose that a customer holds a savings deposit for a year. The balance in the account stood at $2,000 for 180 days and $100 for the remaining days of the year. If the Savings bank paid this depositor $88.50 in interest earnings for the year, what APY did this customer receive?The correct formula is:⎥⎦⎤⎢⎣⎡+=1- )Balance Account Average Earned Interest (1 100 APY Period in Days 365In this instance,⎥⎦⎤⎢⎣⎡+=1 - )$1036.99$88.50 (1 100 APY 365365 orAPY = 8.53 percent,where the average account balance is:$1036.99 days365days 185 x $100 days 180 x $2000=+12-14. What is lifeline banking? What pressures does it impose on the managers of banks and other financial institutions?Lifeline banking consists of basic service packages offered by banks to customers not generally able to afford conventional bank service offerings. The essence of these services is that they carry low service fees and usually do not offer all of the features of banking services carrying full service fees. The pressure on managers to offer basic or lifeline services has aroused a big controversy. From a profit motive point of view banks should not offer unprofitable services. On the other hand, financial institutions are partially subsidized by government in the form of low-interest loans and deposit insurance and, therefore, have some public-service responsibilities which may include providing certain basic services to all potential customers, regardless of their income or social status.12-15. What does the Expedited Funds Availability Act require U.S. depository institutions to do?The Expedited Funds Availability Act mandates a time schedule that sets maximum delays for the receipt of deposit credit that depository institutions can use, and it requires them to inform their customers about their policies for making funds available for customer use.Problems12-1. Exeter National Bank has a funding mix to support its assets as follows:Cash and Interbank Dep 50 Core Deposits 50S.T. Securities 15 Large Negotiable CDs 150Total Loans, Gross 375 Brokered Deposits 65L.T. Securities 150 Other Deposits 140Other Assets 10 Money Mkt. Liabilities 95Total Assets 600 Other Liabilities 70Equity Capital 30Total Liab. & Eq. 600a. Evaluate the funding mix of deposits and nondeposit sources of funds employed by Exeter. Given the mix of its assets, do you see any potential problems? What changes would you like to see management of this bank make? Why?Core deposits/Assets = 8.33%Large Negotiable CDs/Assets = 25.00%Brokered Deposits/Assets = 10.83%Other Deposits/Assets = 23.33%Money Market Liabilities/Assets = 15.83%Other Liabilities/Assets = 11.67%Equity Capital/Assets = 5.00%The proportion of core deposits at Exeter is exceptionally low, while large CDs and other money-m arket borrowings make up more than 40 percent of the bank’s total funding sources. This funding mix tends to subject the bank to excessive vulnerability to quick withdrawal of funds and high interest-rate risk exposure. Exeter also appears to be excessively dependent on brokered deposits which are highly volatile and interest-sensitive. Adding in these brokered deposits, more than half of Exeter’s assets are funded with highly interest-sensitive deposits and money-market borrowings. Management needs to e xpand the bank’s core deposits and other more stable funds sources.b. Suppose market interest rates are projected to rise significantly. Does Exeter appear to face significant losses due to liquidity risk? Due to interest rate risk? Please be as specific as possible.168If interest rates rise, Exeter will experience higher interest costs immediately or within hours or a few days on at least 50 percent of its funding sources. Unfortunately all but $65 million of its $600 million in total assets are longer-term, inflexible assets whose interest yields cannot be adjusted as rapidly as the interest rates to be paid out on the bank’s liabilities. Other factors held equal, the bank’s earnings will be squeezed. Management needs to do some serious restructuring work on both sides of the bank’s balance sheet in moving toward more flexible-return assets and more flexible-cost liabilities, and to move toward greater use of interest-rate hedging techniques.12-2. Kalewood Savings Bank has experienced recent changes in the composition of its deposit (see the table; all figures in millions of dollars). What changes have recently occurred in Kalewood’s deposit mix? Do these changes suggest possible problems for management in trying to increase profitability and stabilize earnings?Types of Deposits ThisYearOneYearAgoTwoYearsAgoThreeYearsAgoRegular & Special Checking Accounts 235 294 337 378Interest Bearing Checking Accounts 392 358 329 287Regular (Passbook) Savings Dep. 501 596 646 709Money Market Deposit Accounts 863 812 749 725Retirement Deposits 650 603 542 498CDs under $100,000 327 298 261 244CDs $100,000 and over 606 587 522 495Regular and special checking accounts have declined sharply from $378 million to $235 million, while interest-bearing checking accounts rose from $287 million to $392 million. Passbook savings deposits have fallen by more than $200 million while money-market deposit accounts, retirement accounts, and both small and large ($100,000 +) CDs have all risen substantially. Management has several reasons to be concerned about these developments because the bank’s funds are shifting into accounts bearing significantly higher interest costs, while the bank is suffering substantial erosion in its core deposits represented by regular (passbook) savings deposits and small checking accounts. Thus, more interest-sensitive funds are supplanting deposits that are more loyal and less interest-elastic. The bank may find its profits are likely to be squeezed by higher interest costs and its earnings may become more volatile if market interest rates experience significant changes in the period ahead because a greater portion of the bank’s funding is coming from more interest-sensitive deposits. A possible offsetting advantage is the shift away from deposits that can be withdrawn without notice (i.e., regular and special checking accounts and passbook savings deposits) toward longer-term deposit instruments with fixed maturities, giving the bank a somewhat longer term and, perhaps, somewhat more predictable funding base.16912-3. First Metrocentre Bank posts the following schedule of fees for its household and small business checking accounts:•For average monthly account balances over $1500 there is no monthly maintenance fee and no charge per check or other draft.•For average monthly account balances of $1000 to $1500 a $2 monthly maintenance fee is assessed and there is a $.10 charge per check or charge cleared.•For average monthly account balances of less than $1000, a $4 monthly maintenance fee is assessed and there is a $.15 per check or per charge fee.What form of deposit pricing is this? What is First Metrocentre trying to accomplish with its pricing schedule? Can you foresee any problems with this pricing schedule?First Metrocentre Bank has posted a schedule of deposit fees that allows the customerservice-charge free checking for average monthly account balances over $1500. Lower balances are assessed an inverse monthly maintenance fee plus an increased per-check charge as the average monthly account balance falls. This is conditional deposit pricing designed to encourage more stable, larger-denomination accounts which would give the bank more money to use and, perhaps, a more stable funding base. The fees on under-$1000 accounts are stiff which may drive away many small depositors to other banks.12-4. Diamond Pit Association finds that it can attract the following amounts of deposits if it offers new depositors and those rolling over their maturing CDs the interest rates indicated below:Expected Volume of New DepositsRate of Interest Offered Depositors$ 10 million 5.00%15 million 5.2520 million 5.5026 million 5.7528 million 6.00Management anticipates being able to invest any new deposits raised in loans yielding 7 percent. How far should this thrift institution go in raising its deposit rate in order to maximize total profit (excluding interest costs)?Expected InflowsRateOfferedon NewFundsTotalInterestCostMarginalInterestCostMarginalCost RateMarginalRevenueRateExp. Diff.In Marg.Rev andCostTotalProfitsEarned$10 5.0% 0.5000 0.5000 5.000% 7.0% +2.0% $0.2000 15 5.25 0.7875 0.2875 5.750 7.0 +1.25 $0.2625 20 5.50 1.100 0.3125 6.250 7.0 +0.75 $0.3000 26 5.75 1.495 0.395 6.583 7.0 +.417 $0.325 28 6.00 1.680 0.185 9.250 7.0 -2.250 $0.280170Emerald Isle National Bank should raise its deposit rate to 5.75%, attracting $26 million in new deposits; because up to that point the marginal revenue rate is greater than the marginal cost rate and total profits are also rising. At 6.0%, the marginal cost rate is greater than the marginal revenue rate and total profits have fallen from a high of $0.325 million back down to $0.28 million. 12-5.Goldbrick Bank plans to launch a new deposit campaign next week in hopes of bringing in from $100 million to $600 million in new deposit money, which it expects to invest at a 7.75 percent yield. Management believes that an offer rate on new deposits of 5.75% would attract $100 million in new deposits and rollover funds. To attract $200 million, the bank would probably be forced to offer 6.25 percent. Goldbrick’s forecast suggests that $300 million might be available at 6.8%, $400 million at 7.25 percent, $500 million at 7.5 percent and $600 million at 7.65 percent. What volume of deposits should the bank try to attract to ensure that marginal cost does not exceed marginal revenue?Expected InflowsRateOfferedon NewFundsTotalInterestCostMarginalInterestCostMarginalCost RateMarginalRevenueRateExp. Diff.In Marg.Rev andCostsTotalProfitsEarned$100 5.75% 5.75 5.75 5.75% 7.75% +2.00% $2.00 $200 6.25% 12.50 6.75 6.75% 7.75% +1.00% $3.00 $300 6.80% 20.40 7.90 7.90% 7.75% -0.15% $2.85 $400 7.25% 29.00 8.60 8.60% 7.75% -0.85% $2.00 $500 7.50% 37.50 8.50 8.50% 7.75% -0.75% $1.25 $600 7.65% 45.90 8.40 8.40% 7.75% -0.65% $0.60 The marginal revenue rate is greater than the marginal cost rate up to $200 million in new deposits. At $300 million, the marginal cost rate of 7.90% is greater than the marginal revenue rate of 7.75%. Therefore, Goldbrick Bank should try and attract $200 million in new deposits.12-6. Bender Savings Bank finds that its basic checking account which requires a $400 minimum balance, costs the bank $2.65 per month in servicing costs (including labor and computer time) and $1.18 per month in overhead expenses. The savings bank also tries to build in a $0.50 per month profit margin on these accounts. What monthly fee should the bank charge each customer?Following the cost-plus-profit approach, the monthly fee should be:Monthly fee = $2.65 + $1.18 + $0.50 = $4.33 per month.Further analysis of customer accounts reveals that for each $100 above the$400 minimum in average balance maintained in its checking accounts, Bender Savings saves about 5 percent in operating expenses with each account. For a customer who consistently maintains an average balance of $1000 per month, how much should the bank charge in order to protect its profits margin?171172If the bank saves about 5 percent in operating expenses for each $100 held in balances above the $400 minimum, then a customer maintaining an average monthly balance of $1,000 should save the bank 30 percent in operating costs.The appropriate fee for this customer would be:[$2.65 -0.30 ($2.65)] + $1.18 + $0.50 = $1.855 + $1.18 + $0.50 = $3.535 per month.12-7. Chris Orange maintains a savings deposit with Santa Paribe Credit Union. This past year Chris received $13.64 in annual interest income from his savings account. His savings deposit had the following average balance each month:January $400 July $350February 250 August 425March 300 September 550April 150 October 600May 225 November 625June 300 December 300What was the annual percentage yield (APY) earned on Chris Orange's savings account?Chris's account had an average balance this year of:[$400 x 31 days + $250 x 28 days + $300 x 31 days + $150 x 30 days+ $225 x 31 days + $300 x 30 days + $350 x 31 days + $425 x 31 days + $550 x 30 days + $600 x 31 days + $625 x 30 days + $300 x 31 days]365 days= $373.56Then the APY must be:APY = 100 percent 3.651)$373.56$13.64(1365/365=⎥⎦⎤⎢⎣⎡-+12-8. The National Bank of Taraville quotes an APY of 5 percent on a one-year money market CD sold to one of the small businesses in town. The firm posted a balance of $2500 the first 90 days of the year, $3000 over the next 180 days, and $5000 for the remainder of the year. How much in total interest earnings did this small businesscustomer receive for the year?Using the APY formula we can fill in the variables whose values are known and find the unknown interest earnings. Thus:173 APY = 100 ⎥⎦⎤⎢⎣⎡-+1)Balance Average Earnings Interest (1365/3655% = 100 ⎥⎦⎤⎢⎣⎡-+1)$3397.26Earnings Interest (1365/365Where the account's average balance is found from: Average Balance = []days 365days 95 x $5000days 180 x $3000days 90 x $2500++= $3397.26Then:5% = 100 Earnings Interest x 0.029435$3397.26Earnings Interest =⎪⎭⎫ ⎝⎛or Interest Earnings = $169.86。
《商业银行管理》课后习题答案IMChap6
CHAPTER 6ASSET/LIABILITY MANAGEMENT: DETERMINING AND MEASURING INTEREST RATES AND CONTROLLING A BANK’S INTEREST-SENSITIVE GAP Goals of This Chapter: To learn how to measure a bank's exposure to interest-rate risk and how to reduce that risk exposure through coordinated management of bank assets and liabilities.Key Terms Presented In This ChapterAsset-liability Management Yield to Maturity (YTM)Asset Management Bank Discount RateLiability Management Net Interest MarginFunds Management Interest-Sensitive Gap ManagementInterest Rate RiskChapter OutlineI. Introduction: The Necessity for Coordinating Bank Asset and Liability ManagementDecisionsII. Asset/Liability Management StrategiesA. Asset Management StrategyB. Liability Management StrategyC. Funds Management StrategyIll. Interest Rate Risk: One of the Banker's Greatest ChallengesA. Nature of Interest-Rate RiskB. Forces Determining Interest RatesC. The Measurement of Interest Rates1. Yield to Maturity2. Bank Discount RateD. The Components of Interest RatesE. Bankers' Response to Interest Rate RiskIV. One of the Goals of Interest-Rate HedgingA. The Net Interest MarginB. Interest-Sensitive Gap Management1. Asset-Sensitive Position2. Liability-Sensitive Position3. Calculation of a Bank's Interest-Sensitive Gap4. Impact of Changing Interest Rates on the Gap5. Decisions that need to be Made Concerning Gap Management6. Computer Techniques for Managing Gap7. Cumulative Gap8. Strategies in Gap Management9. Limitations of Interest-Sensitive Gap Management10. Weighted Interest-Sensitive GapV. Summary of the ChapterConcept Checks6-1. What do the following terms mean: Asset management? Liability management? Funds management?Asset management refers to a banking strategy where management has control over the allocation of bank assets but believes the bank's sources of funds (principally deposits) are outside its control. Liability management is a strategy of control over bank liabilities by varying interest rates offered on borrowed funds. Funds management combines both asset and liability management approaches into a balanced liquidity management strategy.6-2. What factors have motivated banks to develop funds management techniques in recent years?The necessity to find new sources of funds in the 1970s and the risk management problems encountered with troubled loans and volatile interest rates in the 1970s and 1980s led to the concept of planning and control over both sides of a bank's balance sheet -- the essence of funds management.6-3. What forces cause interest rates to change? What kinds of risk do bankers face when interest rates change?Interest rates are determined, not by individual banks, but by the collective borrowing and lending decisions of thousands of participants in the money and capital markets. They are also impacted by changing perceptions of risk by participants in the money and capital markets, especially the risk of borrower default, liquidity risk, price risk, reinvestment risk, inflation risk, term or maturity risk, marketability risk, and call risk.Bankers can lose income or value no matter which way interest rates go. Rising interest rates can lead to losses on bank security instruments and on fixed-rate loans as the market values of these instruments fall. Falling interest rates will usually result in capital gains on fixed-rate securities and loans but a bank will lose income if it has more rate-sensitive assets than liabilities. Rising interest rates will also cause a loss to bank income if a bank has more rate-sensitive liabilities than rate-sensitive assets.6-4. What makes it so difficult for banks to forecast interest rate changes?Interest rates cannot be set by an individual bank or even by a group of banks; they are determined by thousands of investors trading in the credit markets. Moreover, each market rate of interest has multiple components--the risk-free interest rate plus various risk premia. A change in any of these rate components can cause interest rates to change. To consistently forecast market interest rates correctly would require bankers to correctly anticipate changes in the risk-free interest rate and in all rate components. Another important factor is the timing of the changes. To be able to take full advantage of their predictions, they also need to know when the changes will take place.6-5. What is the yield curve and why is it important for bankers to know about its shape or slope?The yield curve is a graphical description of the distribution of market interest rates by maturity of financial instrument. The slope of the yield curve determines the spread between long-term and short-term interest rates. In banking most of the long-term rates apply to loans and securities (i.e., bank assets) and most of the short-term interest rates are attached to bank deposits and money market borrowings. Thus, the shape or slope of the yield curve has a profound influence on a bank's net interest margin or spread between asset revenues and liability costs.6-6. What is it that a bank wishes to protect from adverse movements in interest rates?A bank wishes to protect both the value of bank assets and liabilities and the revenues and costs generated by both assets and liabilities from adverse movements in interest rates.6-7. What is the goal of hedging in banking?The goal of hedging in banking is to freeze the spread between asset returns and liability costs and to offset declining values on certain assets by profitable transactions so that a target rate of return is assured.6-8. First National Bank of Bannerville has posted the following financial statement entries: Interest revenues $63 millionInterest costs $42 millionTotal earning assets $700 millionThe bank's net interest margin must be:Net Interest = $63 mill. - $42 mill. = 0.03 or 3 percentMargin $700 mill.If interest revenues and interest costs double while earning assets grow by 50 percent, the net interest margin will change as follows:($63 mill. - $42 mill.) * 2 = 0.04 or 4 percent$700 mill. * (1.50)Clearly the net interest margin increases--in this case by one third.6-9. Can you explain the concept of gap management?Gap management involves determining the maturity distribution and the repricing schedule for a bank's assets and liabilities. When more assets are subject to repricing or will reach maturity in a given period than liabilities or vice versa, the bank has a GAP and is exposed to loss from adverse interest-rate movements based on the gap's size.6-10 When is a bank asset sensitive? Liability sensitive?A bank is asset sensitive when it has more interest-rate sensitive assets maturing or subject to repricing during a specific time period than rate-sensitive liabilities. A liability sensitive position, in contrast, would find the bank having more interest-rate sensitive deposits and other liabilities than rate-sensitive assets for a particular planning period.6-11. Commerce National Bank reports interest-sensitive assets of $870 million andinterest-sensitive liabilities of $625 million. Because interest-sensitive assets are larger than liabilities by $245 million the bank is asset sensitive.If interest rates rise, the bank's net interest margin should rise as asset revenues increase by more than the resulting increase in liability costs. On the other hand, if interest rates fall, the bank's net interest margin will fall as asset revenues decline faster than liability costs.6-12. First National Bank has a cumulative gap for the coming year of + $135 million and interest rates are expected to fall by two and a half percentage points. What is the expected change in First National's net interest income?ExpectedChange in = $135 million * (-0.025) = -$3.38 millionNet Interest IncomeWhat change will occur in net interest income if interest rates rise by one and a quarter percentage points?Expected Changein Net Interest = $135 million * (+0.0125) = +$1.69 millionIncome6-13 How do you measure a bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap? What is the interest-sensitivity ratio?The dollar interest-sensitive gap is measured by taking the repriceable (interest-sensitive) assets minus the repriceable (interest-sensitive) liabilitiies over some set planning period. Common planning periods include 3 months, 6 months and 1 year. The relative interest-sensitive gap is the dollar interest-sensitive gap divided by some measure of bank size (often total assets). The interest-sensitivity ratio is just the ratio of interest-sensitive assets to interest sensitive liabilities. Regardless of which measure you use, the results should be consistent. If you find a positive (negative) gap for dollar interest-sensitive gap, you should also find a positive (negative) relative interest-sensitive gap and a interest sensitivity ratio greater (less) than one.6-14 Suppose Carroll Bank and Trust reports interest-sensitive assets of $570 million and interest-sensitive liabilities of $685 million. What is the bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap and interest-sensitivity ratio?Dollar Interest-Sensitive Gap = Interest-Sensitive Assets – Interest Sensitive Liabilities= $570 - $685 = -$115Relative Gap = $ IS Gap = -$115 = -0.2018 or -20.18 percent Bank Size $570Interest-Sensitivity = Interest-Sensitive Assets =$570 = .8321 Ratio Interest-Sensitive Liabilities $6856-15 Explain the concept of weighted interest-sensitive gap. How can this concept aid bank’s real interest-sensitive gap risk exposure?Weighted interest-sensitive gap is based on the idea that not all interest rates change at the same speed. Some are more sensitive than others. Interest rates on bank assets may change more slowly than interest rates on liabilities and both of these may change at a different speed than thoseinterest rates determined in the open market. In, the weighted interest-sensitive gap methodology all interest-sensitive assets and liabilities are given a weight based on their speed (sensitivity) relative to some market interest rate. Fed Funds loans, for example, have an interest rate which is determined in the market and which would have a weight of 1. All other loans, investments and deposits would have a weight based on their speed relative to the Fed Funds rate. To determine the interest-sensitive gap, the dollar amount of each type of asset or liability would be multiplied by its weight and added to the rest of the interest-sensitive assets or liabilities. Once the weighted total of the assets and liabilities is determined, a weighted interest-sensitive gap can be determined by subtracting the interest-sensitive liabilities from the interest-sensitive assets. This weighted interest-sensitive gap should be more accurate than the unweighted interest-sensitive gap. The interest-sensitive gap may change from negative to positive or vice versa and may change significantly the interest rate strategy pursued by the bank.Problems6-1. A government bond is currently selling for $900 and pays $80 per year in interest for 5 years when it matures. If the redemption value of this bond is $1,000, what is its yield to maturity if purchased today for $900. The yield to maturity equation for this bond would be:$900 = $80(1YTM)1+ + $80(1YTM)2+ + $80(1YTM)3+ + $80(1YTM)4++ $80(1YTM)5+ + $1,000(1YTM)5+At an YTM of 10 percent the bond's price is $924.28, while at 12 percent its price becomes $864.40. Thus, the true YTM lies between 10% and 12%. To find the true YTM we use: 10% + 40.864$28.924$900$28.924$-- * 2% ≈ 10.81%6-2. Suppose the government bond described in problem #1 is held for 3 years and then the bank acquiring the bond decides to sell it at a price of $950. Can you figure out the average annual yield the bank will have earned for its 3-year investment in the bond?In this instance the yield-to-maturity equation can be modified slightly to find the correct holding-period yield that the bank would earn. Specifically,$900 = $80(1HPY)1+ + $80(1HPY)2++ $80(1HPY)3+ + $950(1HPY)3+At an HPY of 10% the bond's price becomes $912.31, while at 12% the bond's price is $868.56.The true holding period yield must be:10% + 912.31900912.31868.56--⎡⎣⎢⎤⎦⎥ x 2% ≈10.56%.6-3. U.S. Treasury bills are available for purchase this week at the following prices (based upon $100 par value) and with the indicated maturities:a. $97.25, 182 days.b. $96.50, 270 days.c. $98.75, 91 days.The discount rates and equivalent yields to maturity (bond-equivalent or coupon-equivalent yields) on each of these Treasury bills are:Discount Rates Equivalent Yields to Maturitya.(10097.25)100- * 360182 = 5.44% (365x.0544)[360(0.0544x182)]- = 19.856350.1 = 5.67% b.(10096.50)100- * 360270 = 4.67% (365x.0467)[360(.0467x270)]- = 17.046347.39 = 4.91% c. (10098.75)100- * 36091 = 4.95% (365x.0495)[360(.0495x91)]- = 18.07355.5 = 5.08%6-4. The First State Bank of Ashfork reports a net interest margin of 3.25 percent in its most recent financial report with total interest revenues of $88 million and total interest costs of $72 million. What volume of earning assets must the bank hold?The relevant formula is:Net Interest Margin = .0325 = AssetsEarning mil. $72mill. $88-Then Earning Assets = $492.31 million.Suppose the bank's interest revenues rise by 8 percent and its interest costs and earning assets increase 10 percent. What will happen to Ash Fork's net interest margin?Substituting in the correct formula we have:New Net Interest Margin = .10)million(1 $492.3.10)million(1 $72.08)(1 million $88++-+= million$541.53million $79.20million $95.04-= 0.0293 or 2.93 percent.6-5. If a bank's net interest margin, which was 2.85 percent, doubles and its total assets, which stood originally at $545 million, rise by 40 percent, what change will occur in the bank's net interest income?The correct formula is:.0285 * 2 = .4)(1*million 545$Income Interest Net +or Net Interest Income = 0.057 * $763 million= $43.49 million.6-6. The cumulative interest-rate gap of Snidal State Bank and Trust Company doubles from an initial figure of -$35 million. If market interest rates fall by 25 percent from an initial level of 6 percent, what change will occur in Snidal Bank's net interest income?The key formula here is:Change in the Bank's = Change in interest rates (in percentage points) * cumulative gap Net Interest = 0.06 * -.25 x (-$35 mill.) * 2Income = 1.05Thus, the bank's net interest income will rise by 5 percent.6-7. Given: Merchants State Bank has recorded the following financial data for the past three years (dollars in millions):Current Year Previous Year Two Years Ago Interest revenues $57 $56 $55 Interest expenses 49 42 34 Loans (Excluding nonperforming) 411 408 406 Investments 239 197 174 Total deposits 487 472 467 Money market borrowings 143 118 96 Solution:Net interest margin (NIM) = Net Interest Income/Earning Assets, whereNet Interest Income = Net Interest Revenues - Net Interest ExpensesEarning Assets = Loans + InvestmentsNIM(Current) = ($57-49)/(411 + 239) = 8/650 = 0.0123 or 1.23%NIM(previous) = ($56-42)/(408 + 197) = 14/605 = 0.0231 or 2.31%NIM(Two years ago) = ($55-34)/(406 + 174) = 21/580 = 0.0362 or 3.62%The net interest margin has been declining steadily and significantly. Probable causes include greater increases in interest expenses relative to interest income due to shifts in funding mix with greater dependence on borrowed funds (more expensive sources) relative to deposits (less expensive sources). Additionally, the mix in earning assets, with greater growth in lower yielding investment securities than in higher yielding loans, is another contributor to the steadily declining net interest margin.Management needs to reevaluate its funding strategies and its loan and investment strategies. If slower loan growth is related to external forces -- for example, a weaker economy -- then less borrowing should be considered. If the slower loan growth is more internal, then more aggressive loan management would be appropriate.6-8 The First National Bank of Wedora, California has the following interest-sensitive gaps:Coming WeekNext30 DaysNext31-90 DaysMore Than90 DaysInterest - $144 $110 $164 $184 Sensitive +29 +19 29 8 Assets = $173 $129 $193 $192 Interest - $232 $ --- $ --- $ --- Sensitive 98 84 196 35 Liabilities = 36 6 --- ---$366 $90 $196 $35 GAP - $193 + $39 - $3 + $157 Cumulative GAP - $193 - $154 - $157 $0First National has a cumulative zero gap and therefore is not vulnerable to loss if interest rates rise. It does have a positive gap in two periods--the next 30 days and more than 90 days. During these particular periods a rise in interest rates would produce a short-run gain.6-9 First National Bank of Barnett currently has the following interest-sensitive assets and liabilities on its balance sheet:Interest-Sensitive Assets Interest-Sensitive LiabilitiesFederal fund loans $65Security holdings $42 Interest-bearing deposits $185Loans and leases $230 Money-market borrowings $78What is the bank’s current interest-sensitive gap? Suppose its Federal funds loans carry an interest-rate sensitivity weight of 1.0 while its investments have a rate-sensitivity weight of 1.15 and its loans and leases display a rate-sensitivity weight of 1.35. On the liability side First National’s rate-sensitivity weight is 0.79 for interest-bearing deposits and 0.98 for itsmoney-market borrowings. Adjusted for these various interest-rate sensitivity weights, what is the bank’s weighted interest-sensitive gap? Suppose the Federal funds interest rate increases or decreases one percentage point. How will the bank’s net interest income be affecte d (a) given its current balance sheet make up and (b) reflecting its weighted balance sheet adjusted for the foregoing rate-sensitivity weights?Solution:Dollar IS Gap = ISA - ISL = ($65 + $42 + $230) - ($185 + $78) = $337 - $263 = $74 Weighted IS Gap = [(1)($65) + (1.15)(42) + (1.35)(230)] - [(.79)($185) + (.98)($78)] = $65 + $48.3 + $310.5 - $146.15 + $76.44= $423.8 - $222.59= $201.21a.) Change in Bank’s Income = IS Gap * Change in interest rates= ($74)(.01) = $.74 millionUsing the regular IS Gap, net income will change by plus or minus $740,000b.) Change in Bank’s Income = Weighted IS Gap * Change in interest rates= ($201.21)(.01) = $2.012Using the weighted IS Gap, net income will change by plus or minus $2,012,0006-10 McGraw Bank and Trust has interest-sensitive assets of $225 million and interest-sensitive liabilities of $168 million. What is the bank’s dollar interest-sensitive gap? What is McGraw’srelative interest-sensitive gap? What is the value of its interest-sensitivity ratio? Is the bank asset sensitive or liability sensitive? Under what scenario for market interest rates will the bank experience a gain in net interest income? A loss in net interest income?Dollar Interest-Sensitive Gap = ISA – ISL = $225 - $168 = $57Relative Interest-Sensitive Gap = ISA – ISL = $57 = 0.2533Bank Size $225Interest-Sensitivity Ratio = ISA = $225 = 1.3393ISL $168This bank is asset sensitive. More assets will be repriced during this time period than liabilities. This means that if interest rates rise, the interest earned on assets will rise relative to the interest paid on liabilities and net interest margin will rise. However, if interest rates fall, interest earned on assets will fall more than interest paid on liabilities and net interest margin will fall.Web Site Problems1. Suppose you want to know what types of banks make the greatest use of asset-liability management tools and what their biggest ALM problems are? Where would you go on the web to try to get answers to these questions?Almost all banks are required by regulators to have some kind of ALM management in place. These techniques can be as simple as the interest sensitive gap discussion in this chapter or the duration gap management in the next chapter. However, there are many consulting firms out there that have developed specific models for managing ALM. One way to see what is out there is to do a search on bank ALM management and see some of the sites that are out there. These sites range from sites for the consulting firms to more general sites that provide a good definition and description of ALM management. Two sources that are available at this time for general information on asset-liability management are/glossaryassetliabilitymanagement.htm and/Products/nccb_asset.htm. However if you want a good discussion of specific models and the problems people are having with ALM management, one good source appears to be /. This site has several discussion groups on various ALM topics.2. If a new web model to apply ALM techniques to a bank’s risk exposure is developed, at what web site are you most likely to find a discussion of that new ALM model?The best place to get information about a new ALM model would be the/ site mentioned above. If a promising new model were developed it would be sure to show up in the discussion groups mentioned above.3. If you need guidance on how to prepare bank forecasts and measure risk as part of a bank’s ALM activities which web site could be most helpful to you?If you are not willing to go to a consultant about how to develop bank forecasts and measure risk, the / web site would probably be the most helpful site. There are many discussions there about how to deal with specific measurement issues and how to find information to determine the risk of your bank compared to peer institutions.85。
《商业银行管理》课后习题答案IMChap6
CHAPTER 6ASSET/LIABILITY MANAGEMENT: DETERMINING AND MEASURING INTEREST RATES AND CONTROLLING A BANK’S INTEREST-SENSITIVE GAP Goals of This Chapter: To learn how to measure a bank's exposure to interest-rate risk and how to reduce that risk exposure through coordinated management of bank assets and liabilities.Key Terms Presented In This ChapterAsset-liability Management Yield to Maturity (YTM)Asset Management Bank Discount RateLiability Management Net Interest MarginFunds Management Interest-Sensitive Gap ManagementInterest Rate RiskChapter OutlineI. Introduction: The Necessity for Coordinating Bank Asset and Liability ManagementDecisionsII. Asset/Liability Management StrategiesA. Asset Management StrategyB. Liability Management StrategyC. Funds Management StrategyIll. Interest Rate Risk: One of the Banker's Greatest ChallengesA. Nature of Interest-Rate RiskB. Forces Determining Interest RatesC. The Measurement of Interest Rates1. Yield to Maturity2. Bank Discount RateD. The Components of Interest RatesE. Bankers' Response to Interest Rate RiskIV. One of the Goals of Interest-Rate HedgingA. The Net Interest MarginB. Interest-Sensitive Gap Management1. Asset-Sensitive Position2. Liability-Sensitive Position3. Calculation of a Bank's Interest-Sensitive Gap4. Impact of Changing Interest Rates on the Gap5. Decisions that need to be Made Concerning Gap Management6. Computer Techniques for Managing Gap7. Cumulative Gap8. Strategies in Gap Management9. Limitations of Interest-Sensitive Gap Management10. Weighted Interest-Sensitive GapV. Summary of the ChapterConcept Checks6-1. What do the following terms mean: Asset management? Liability management? Funds management?Asset management refers to a banking strategy where management has control over the allocation of bank assets but believes the bank's sources of funds (principally deposits) are outside its control. Liability management is a strategy of control over bank liabilities by varying interest rates offered on borrowed funds. Funds management combines both asset and liability management approaches into a balanced liquidity management strategy.6-2. What factors have motivated banks to develop funds management techniques in recent years?The necessity to find new sources of funds in the 1970s and the risk management problems encountered with troubled loans and volatile interest rates in the 1970s and 1980s led to the concept of planning and control over both sides of a bank's balance sheet -- the essence of funds management.6-3. What forces cause interest rates to change? What kinds of risk do bankers face when interest rates change?Interest rates are determined, not by individual banks, but by the collective borrowing and lending decisions of thousands of participants in the money and capital markets. They are also impacted by changing perceptions of risk by participants in the money and capital markets, especially the risk of borrower default, liquidity risk, price risk, reinvestment risk, inflation risk, term or maturity risk, marketability risk, and call risk.Bankers can lose income or value no matter which way interest rates go. Rising interest rates can lead to losses on bank security instruments and on fixed-rate loans as the market values of these instruments fall. Falling interest rates will usually result in capital gains on fixed-rate securities and loans but a bank will lose income if it has more rate-sensitive assets than liabilities. Rising interest rates will also cause a loss to bank income if a bank has more rate-sensitive liabilities than rate-sensitive assets.6-4. What makes it so difficult for banks to forecast interest rate changes?Interest rates cannot be set by an individual bank or even by a group of banks; they are determined by thousands of investors trading in the credit markets. Moreover, each market rate of interest has multiple components--the risk-free interest rate plus various risk premia. A change in any of these rate components can cause interest rates to change. To consistently forecast market interest rates correctly would require bankers to correctly anticipate changes in the risk-free interest rate and in all rate components. Another important factor is the timing of the changes. To be able to take full advantage of their predictions, they also need to know when the changes will take place.6-5. What is the yield curve and why is it important for bankers to know about its shape or slope?The yield curve is a graphical description of the distribution of market interest rates by maturity of financial instrument. The slope of the yield curve determines the spread between long-term and short-term interest rates. In banking most of the long-term rates apply to loans and securities (i.e., bank assets) and most of the short-term interest rates are attached to bank deposits and money market borrowings. Thus, the shape or slope of the yield curve has a profound influence on a bank's net interest margin or spread between asset revenues and liability costs.6-6. What is it that a bank wishes to protect from adverse movements in interest rates?A bank wishes to protect both the value of bank assets and liabilities and the revenues and costs generated by both assets and liabilities from adverse movements in interest rates.6-7. What is the goal of hedging in banking?The goal of hedging in banking is to freeze the spread between asset returns and liability costs and to offset declining values on certain assets by profitable transactions so that a target rate of return is assured.6-8. First National Bank of Bannerville has posted the following financial statement entries: Interest revenues $63 millionInterest costs $42 millionTotal earning assets $700 millionThe bank's net interest margin must be:Net Interest = $63 mill. - $42 mill. = 0.03 or 3 percentMargin $700 mill.If interest revenues and interest costs double while earning assets grow by 50 percent, the net interest margin will change as follows:($63 mill. - $42 mill.) * 2 = 0.04 or 4 percent$700 mill. * (1.50)Clearly the net interest margin increases--in this case by one third.6-9. Can you explain the concept of gap management?Gap management involves determining the maturity distribution and the repricing schedule for a bank's assets and liabilities. When more assets are subject to repricing or will reach maturity in a given period than liabilities or vice versa, the bank has a GAP and is exposed to loss from adverse interest-rate movements based on the gap's size.6-10 When is a bank asset sensitive? Liability sensitive?A bank is asset sensitive when it has more interest-rate sensitive assets maturing or subject to repricing during a specific time period than rate-sensitive liabilities. A liability sensitive position, in contrast, would find the bank having more interest-rate sensitive deposits and other liabilities than rate-sensitive assets for a particular planning period.6-11. Commerce National Bank reports interest-sensitive assets of $870 million andinterest-sensitive liabilities of $625 million. Because interest-sensitive assets are larger than liabilities by $245 million the bank is asset sensitive.If interest rates rise, the bank's net interest margin should rise as asset revenues increase by more than the resulting increase in liability costs. On the other hand, if interest rates fall, the bank's net interest margin will fall as asset revenues decline faster than liability costs.6-12. First National Bank has a cumulative gap for the coming year of + $135 million and interest rates are expected to fall by two and a half percentage points. What is the expected change in First National's net interest income?ExpectedChange in = $135 million * (-0.025) = -$3.38 millionNet Interest IncomeWhat change will occur in net interest income if interest rates rise by one and a quarter percentage points?Expected Changein Net Interest = $135 million * (+0.0125) = +$1.69 millionIncome6-13 How do you measure a bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap? What is the interest-sensitivity ratio?The dollar interest-sensitive gap is measured by taking the repriceable (interest-sensitive) assets minus the repriceable (interest-sensitive) liabilitiies over some set planning period. Common planning periods include 3 months, 6 months and 1 year. The relative interest-sensitive gap is the dollar interest-sensitive gap divided by some measure of bank size (often total assets). The interest-sensitivity ratio is just the ratio of interest-sensitive assets to interest sensitive liabilities. Regardless of which measure you use, the results should be consistent. If you find a positive (negative) gap for dollar interest-sensitive gap, you should also find a positive (negative) relative interest-sensitive gap and a interest sensitivity ratio greater (less) than one.6-14 Suppose Carroll Bank and Trust reports interest-sensitive assets of $570 million and interest-sensitive liabilities of $685 million. What is the bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap and interest-sensitivity ratio?Dollar Interest-Sensitive Gap = Interest-Sensitive Assets – Interest Sensitive Liabilities= $570 - $685 = -$115Relative Gap = $ IS Gap = -$115 = -0.2018 or -20.18 percent Bank Size $570Interest-Sensitivity = Interest-Sensitive Assets =$570 = .8321 Ratio Interest-Sensitive Liabilities $6856-15 Explain the concept of weighted interest-sensitive gap. How can this concept aid bank’s real interest-sensitive gap risk exposure?Weighted interest-sensitive gap is based on the idea that not all interest rates change at the same speed. Some are more sensitive than others. Interest rates on bank assets may change more slowly than interest rates on liabilities and both of these may change at a different speed than thoseinterest rates determined in the open market. In, the weighted interest-sensitive gap methodology all interest-sensitive assets and liabilities are given a weight based on their speed (sensitivity) relative to some market interest rate. Fed Funds loans, for example, have an interest rate which is determined in the market and which would have a weight of 1. All other loans, investments and deposits would have a weight based on their speed relative to the Fed Funds rate. To determine the interest-sensitive gap, the dollar amount of each type of asset or liability would be multiplied by its weight and added to the rest of the interest-sensitive assets or liabilities. Once the weighted total of the assets and liabilities is determined, a weighted interest-sensitive gap can be determined by subtracting the interest-sensitive liabilities from the interest-sensitive assets. This weighted interest-sensitive gap should be more accurate than the unweighted interest-sensitive gap. The interest-sensitive gap may change from negative to positive or vice versa and may change significantly the interest rate strategy pursued by the bank.Problems6-1. A government bond is currently selling for $900 and pays $80 per year in interest for 5 years when it matures. If the redemption value of this bond is $1,000, what is its yield to maturity if purchased today for $900. The yield to maturity equation for this bond would be:$900 = $80(1YTM)1+ + $80(1YTM)2+ + $80(1YTM)3+ + $80(1YTM)4++ $80(1YTM)5+ + $1,000(1YTM)5+At an YTM of 10 percent the bond's price is $924.28, while at 12 percent its price becomes $864.40. Thus, the true YTM lies between 10% and 12%. To find the true YTM we use: 10% + 40.864$28.924$900$28.924$-- * 2% ≈ 10.81%6-2. Suppose the government bond described in problem #1 is held for 3 years and then the bank acquiring the bond decides to sell it at a price of $950. Can you figure out the average annual yield the bank will have earned for its 3-year investment in the bond?In this instance the yield-to-maturity equation can be modified slightly to find the correct holding-period yield that the bank would earn. Specifically,$900 = $80(1HPY)1+ + $80(1HPY)2++ $80(1HPY)3+ + $950(1HPY)3+At an HPY of 10% the bond's price becomes $912.31, while at 12% the bond's price is $868.56.The true holding period yield must be:10% + 912.31900912.31868.56--⎡⎣⎢⎤⎦⎥ x 2% ≈10.56%.6-3. U.S. Treasury bills are available for purchase this week at the following prices (based upon $100 par value) and with the indicated maturities:a. $97.25, 182 days.b. $96.50, 270 days.c. $98.75, 91 days.The discount rates and equivalent yields to maturity (bond-equivalent or coupon-equivalent yields) on each of these Treasury bills are:Discount Rates Equivalent Yields to Maturitya.(10097.25)100- * 360182 = 5.44% (365x.0544)[360(0.0544x182)]- = 19.856350.1 = 5.67% b.(10096.50)100- * 360270 = 4.67% (365x.0467)[360(.0467x270)]- = 17.046347.39 = 4.91% c. (10098.75)100- * 36091 = 4.95% (365x.0495)[360(.0495x91)]- = 18.07355.5 = 5.08%6-4. The First State Bank of Ashfork reports a net interest margin of 3.25 percent in its most recent financial report with total interest revenues of $88 million and total interest costs of $72 million. What volume of earning assets must the bank hold?The relevant formula is:Net Interest Margin = .0325 = AssetsEarning mil. $72mill. $88-Then Earning Assets = $492.31 million.Suppose the bank's interest revenues rise by 8 percent and its interest costs and earning assets increase 10 percent. What will happen to Ash Fork's net interest margin?Substituting in the correct formula we have:New Net Interest Margin = .10)million(1 $492.3.10)million(1 $72.08)(1 million $88++-+= million$541.53million $79.20million $95.04-= 0.0293 or 2.93 percent.6-5. If a bank's net interest margin, which was 2.85 percent, doubles and its total assets, which stood originally at $545 million, rise by 40 percent, what change will occur in the bank's net interest income?The correct formula is:.0285 * 2 = .4)(1*million 545$Income Interest Net +or Net Interest Income = 0.057 * $763 million= $43.49 million.6-6. The cumulative interest-rate gap of Snidal State Bank and Trust Company doubles from an initial figure of -$35 million. If market interest rates fall by 25 percent from an initial level of 6 percent, what change will occur in Snidal Bank's net interest income?The key formula here is:Change in the Bank's = Change in interest rates (in percentage points) * cumulative gap Net Interest = 0.06 * -.25 x (-$35 mill.) * 2Income = 1.05Thus, the bank's net interest income will rise by 5 percent.6-7. Given: Merchants State Bank has recorded the following financial data for the past three years (dollars in millions):Current Year Previous Year Two Years Ago Interest revenues $57 $56 $55 Interest expenses 49 42 34 Loans (Excluding nonperforming) 411 408 406 Investments 239 197 174 Total deposits 487 472 467 Money market borrowings 143 118 96 Solution:Net interest margin (NIM) = Net Interest Income/Earning Assets, whereNet Interest Income = Net Interest Revenues - Net Interest ExpensesEarning Assets = Loans + InvestmentsNIM(Current) = ($57-49)/(411 + 239) = 8/650 = 0.0123 or 1.23%NIM(previous) = ($56-42)/(408 + 197) = 14/605 = 0.0231 or 2.31%NIM(Two years ago) = ($55-34)/(406 + 174) = 21/580 = 0.0362 or 3.62%The net interest margin has been declining steadily and significantly. Probable causes include greater increases in interest expenses relative to interest income due to shifts in funding mix with greater dependence on borrowed funds (more expensive sources) relative to deposits (less expensive sources). Additionally, the mix in earning assets, with greater growth in lower yielding investment securities than in higher yielding loans, is another contributor to the steadily declining net interest margin.Management needs to reevaluate its funding strategies and its loan and investment strategies. If slower loan growth is related to external forces -- for example, a weaker economy -- then less borrowing should be considered. If the slower loan growth is more internal, then more aggressive loan management would be appropriate.6-8 The First National Bank of Wedora, California has the following interest-sensitive gaps:Coming WeekNext30 DaysNext31-90 DaysMore Than90 DaysInterest - $144 $110 $164 $184 Sensitive +29 +19 29 8 Assets = $173 $129 $193 $192 Interest - $232 $ --- $ --- $ --- Sensitive 98 84 196 35 Liabilities = 36 6 --- ---$366 $90 $196 $35 GAP - $193 + $39 - $3 + $157 Cumulative GAP - $193 - $154 - $157 $0First National has a cumulative zero gap and therefore is not vulnerable to loss if interest rates rise. It does have a positive gap in two periods--the next 30 days and more than 90 days. During these particular periods a rise in interest rates would produce a short-run gain.6-9 First National Bank of Barnett currently has the following interest-sensitive assets and liabilities on its balance sheet:Interest-Sensitive Assets Interest-Sensitive LiabilitiesFederal fund loans $65Security holdings $42 Interest-bearing deposits $185Loans and leases $230 Money-market borrowings $78What is the bank’s current interest-sensitive gap? Suppose its Federal funds loans carry an interest-rate sensitivity weight of 1.0 while its investments have a rate-sensitivity weight of 1.15 and its loans and leases display a rate-sensitivity weight of 1.35. On the liability side First National’s rate-sensitivity weight is 0.79 for interest-bearing deposits and 0.98 for itsmoney-market borrowings. Adjusted for these various interest-rate sensitivity weights, what is the bank’s weighted interest-sensitive gap? Suppose the Federal funds interest rate increases or decreases one percentage point. How will the bank’s net interest income be affecte d (a) given its current balance sheet make up and (b) reflecting its weighted balance sheet adjusted for the foregoing rate-sensitivity weights?Solution:Dollar IS Gap = ISA - ISL = ($65 + $42 + $230) - ($185 + $78) = $337 - $263 = $74 Weighted IS Gap = [(1)($65) + (1.15)(42) + (1.35)(230)] - [(.79)($185) + (.98)($78)] = $65 + $48.3 + $310.5 - $146.15 + $76.44= $423.8 - $222.59= $201.21a.) Change in Bank’s Income = IS Gap * Change in interest rates= ($74)(.01) = $.74 millionUsing the regular IS Gap, net income will change by plus or minus $740,000b.) Change in Bank’s Income = Weighted IS Gap * Change in interest rates= ($201.21)(.01) = $2.012Using the weighted IS Gap, net income will change by plus or minus $2,012,0006-10 McGraw Bank and Trust has interest-sensitive assets of $225 million and interest-sensitive liabilities of $168 million. What is the bank’s dollar interest-sensitive gap? What is McGraw’srelative interest-sensitive gap? What is the value of its interest-sensitivity ratio? Is the bank asset sensitive or liability sensitive? Under what scenario for market interest rates will the bank experience a gain in net interest income? A loss in net interest income?Dollar Interest-Sensitive Gap = ISA – ISL = $225 - $168 = $57Relative Interest-Sensitive Gap = ISA – ISL = $57 = 0.2533Bank Size $225Interest-Sensitivity Ratio = ISA = $225 = 1.3393ISL $168This bank is asset sensitive. More assets will be repriced during this time period than liabilities. This means that if interest rates rise, the interest earned on assets will rise relative to the interest paid on liabilities and net interest margin will rise. However, if interest rates fall, interest earned on assets will fall more than interest paid on liabilities and net interest margin will fall.Web Site Problems1. Suppose you want to know what types of banks make the greatest use of asset-liability management tools and what their biggest ALM problems are? Where would you go on the web to try to get answers to these questions?Almost all banks are required by regulators to have some kind of ALM management in place. These techniques can be as simple as the interest sensitive gap discussion in this chapter or the duration gap management in the next chapter. However, there are many consulting firms out there that have developed specific models for managing ALM. One way to see what is out there is to do a search on bank ALM management and see some of the sites that are out there. These sites range from sites for the consulting firms to more general sites that provide a good definition and description of ALM management. Two sources that are available at this time for general information on asset-liability management are/glossaryassetliabilitymanagement.htm and/Products/nccb_asset.htm. However if you want a good discussion of specific models and the problems people are having with ALM management, one good source appears to be /. This site has several discussion groups on various ALM topics.2. If a new web model to apply ALM techniques to a bank’s risk exposure is developed, at what web site are you most likely to find a discussion of that new ALM model?The best place to get information about a new ALM model would be the/ site mentioned above. If a promising new model were developed it would be sure to show up in the discussion groups mentioned above.3. If you need guidance on how to prepare bank forecasts and measure risk as part of a bank’s ALM activities which web site could be most helpful to you?If you are not willing to go to a consultant about how to develop bank forecasts and measure risk, the / web site would probably be the most helpful site. There are many discussions there about how to deal with specific measurement issues and how to find information to determine the risk of your bank compared to peer institutions.85。
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Problems7-1. What kind of futures or options hedges would be called for in the following situations?a. Interest rates are expected to decline and First National Bank of Canton expects a sharp seasonal rise in loan demand in the upcoming spring quarter.First National can expect lower loan revenue unless it uses long futures hedges in which contracts for government securities are first purchased and then sold at a profit as security prices rise provided interest rate really do fall. A similar gain could be made using call options on government securities or on financial futures contracts.b. Silsbee State Bank has interest-sensitive assets of $79 million and interest-sensitive liabilities of $68 million over the next 30 days and market interest rates are expected to fall.Sislbee State Bank’s interest-sensitive assets exceed its interest-sensitive liabilities by $11 million which means the bank will be open to loss if interest rates fall. The bank could purchase financial futures contracts for subsequent sale or use a call option on government securities or financial futures contracts approximately equal in dollar volume to the $11 million interest-sensitive gap.c. A survey of Tuskee Bank’s corporate loan customers this month (October) indicates that, on balance, this group of firms will need to draw $155 million from their credit lines in November and D ecember, which is $80 million more than the bank’s management has forecasted and prepared for. The bank’s economist has predicted a significant increase in money market rates over the next 60 days.The forecast of higher interest rates means the bank must borrow at a higher interest cost which, other things held equal, will lower its net interest margin. To offset the expected higher borrowing costs the bank's management should consider a short sale of financial futures contracts or a put option approximately equal in volume to the additional loan demand. Either government securities or EuroCDs would be good instruments to consider using in the futures market or in the option market.d. Settlement Hills National Bank reports that its interest-sensitive liabilities for the next week will be approximately $42 million, while interest-sensitive assets will approach $31 million. Data provided by the Federal Reserve Board suggests a near-term rise in money market interest rates.Settlement Hills National Bank has interest-sensitive liabilities greater than interest-sensitive assets by $11 million. If interest rates rise, the bank's net interest margin will likely be squeezed due to the faster rise in liability costs. Sales of financial futures contracts followed by a subsequent purchase or put options would probably help here.e. Caufield Bank and Trust Company finds that its portfolio of earning assets as an average duration of 1.35 years and its liabilities have an average duration of .95 years. Interest rates are expected to rise by 50 basis points between now and year-endCaufield Bank and Trust Company has an asset duration of 1.35 years and a liabilities duration of 0.95. A 50-basis point rise in money-market rates would reduce asset values relative to liabilities which means its net worth would decline. The bank should consider short sales of government futures contracts or put options on these securities or on their related futures contracts.7-3. A bank plans to borrow $55 million in the money market for one month at a current interest rate of 8.5 percent with an interest-rate cap on this borrowing of 10 percent. Suppose money market interest rates climb to 11.5 percent as soon as the borrowing occurs. How much total interest will the bank owe?Total Amount Interest Number of MonthsInterest Owed = Borrowed * Rate Charged * 12= $55 million x 0.115 x 112= $0.527 million or $527,000.7-9. Silver Beach National Bank wants to purchase a portfolio of million-dollar-denomination commercial loans with an expected average rate of return of 11 percent. However, when funds become available to purchase the loans in 6 months, market interest rates are expected to be in the 10 percent range. If the total size of the portfolio is $100 million and Treasury Bill options are available today at a market price of $890,000 (per million-dollar contract) upon payment of a $12,000 premium and we forecast a rise in market value of $900,000, what before-tax profit could the bank earn from this transaction?The relevant before-tax profit formula is:Before-Tax Profit = $900,000 - $890,000 - $12,000 = -$2,000.In this case there is no option profit, only a loss due to the failure of T-bill prices to rise enough to fully cover the option premium. Because interest rates are expected to fall, a call option would be appropriate.7-10. Treasury bill futures contracts carry denominations of $1 million but have a current market value of $960,000. Suppose the duration of these bills is 0.33 years and market interest rates fall from 4 percent to 3 percent. What change in the index value of these futures contracts will occur?Change in Value of T-Bill Futures 0.04) (1.01- x $960,000 x years .33- +== +$3046.157-11. Suppose a bank wants to hedge its overall asset-liability position using T-bond futures contracts. Given the information below:Total assets $853 million Duration of bank assets 3.5 years Total liabilities $790 million Duration of bank liabilities 1.7 years Price of futures $95,000 Duration of T-bonds 9.5 yearsPlease calculate the approximate number of futures contracts the bank will need to fully cover the interest-rate risk it faces? Number of Futures Contracts Needed = mill. $.095 x years 5.9mill. $835 x years) 1.7 x mill.$835mill.$790 - years (3.5= 1750.14 contracts7-12. By what amount will the market value of Treasury bond futures contracts change if they have a duration of 8.80 years, a current market price of $98,500, and if interest rates rise from 8.50 to 9.50 percent?Changes in Value of T-Bond Futures Contract 0.0850) (10.01 x$98,500 x years 8.80- ++== -$7988.947-13. Cleberg National Bank reports that its assets have a duration of 1.90 years while liabilities average 1.12 years in duration. To hedge its duration gap management wants to employ T-bond futures contracts that have a current price of $99,250 and a duration of 9 years. The ba nk's assets total $144 million and liabilities total $132 million. Approximately how many futures contracts for T-bonds will the bank need to cover its interest-rate risk exposure?Number of T-Bond Futures Contracts Neededmillion 09925 . * years 9million 144$*)12.1*million144$million$132 - years (1.90=140.79 contracts。