Chapter+11+Answers+to+end-of-chapter+questions

Chapter+11+Answers+to+end-of-chapter+questions - CHAPTER 11...

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CHAPTER 11 OFF-BALANCE-SHEET ACTIVITIES Chapter outline Off-Balance-Sheet Activities and FI Solvency Returns and Risks of Off-Balance-Sheet Activities Commitments Interest Rate Risk Draw Down Risk Credit Risk Aggregate Funding Risk Direct Credit Substitutes and Trade- and Performance-Related Items Documentary Letters of Credit Standby Letters of Credit Derivative Contracts: Futures, Forwards, Swaps and Options Forward Purchases Loans Sold The Role of OBS Activities in Reducing Risk Instructor’s Resource Manual t/a Financial Institutions Management 2e by Lange, Saunders, 1
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Answers to end-of-chapter questions QUESTIONS AND PROBLEMS 1. Classify the following items as either on-balance-sheet assets, on-balance-sheet liabilities, off-balance-sheet assets, off-balance-sheet liabilities or capital accounts: (a) Loan commitments—off-balance-sheet assets (b) Loan loss reserves—capital accounts (c) Letters of credit—off-balance-sheet assets (d) Bankers’ acceptance—off-balance-sheet assets (e) Rediscounted bankers’ acceptance—on-balance-sheet liabilities (f) Loan sales without recourse—none of the above (g) Loan sales with recourse—off-balance-sheet assets (h) Forward contracts to purchase—off-balance-sheet assets (i) Forward contracts to sell—off-balance-sheet liabilities (j) Swaps—off-balance-sheet liabilities (for liability swaps) (k). Loan participations—on-balance-sheet assets (l) Securities borrowed—off-balance-sheet assets (m) Securities lent—off-balance-sheet liabilities (n) Loss adjustment expense account (PC insurers)—on-balance-sheet liabilities (o) Net policy reserves—on-balance-sheet liabilities (p) Potential asbestos-related claims—off-balance-sheet liabilities 2. Enumerate the sources of FI risk exposure for all of the items in Question 1. (a) Credit risk, interest rate risk, drawdown risk, funding risk, exchange rate risk (if foreign currency denominated). (b) Credit risk, interest rate risk, exchange rate risk (if foreign currency denominated). (c) Credit risk, interest rate risk, drawdown risk, exchange rate risk (if foreign currency denominated). (d) Credit risk, interest rate risk, drawdown risk, exchange rate risk (if foreign currency denominated). (e) Interest rate risk, exchange rate risk (if foreign currency denominated). (f) None. (g) Credit risk, exchange rate risk (if foreign currency denominated). (h) Credit risk, interest rate risk, exchange rate risk (if foreign currency denominated). (i) Credit risk, interest rate risk, exchange rate risk (if foreign currency denominated). (j) Credit risk, interest rate risk, exchange rate risk (if foreign currency denominated). (k) Credit risk, interest rate risk, exchange rate risk (if foreign currency denominated).
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Chapter+11+Answers+to+end-of-chapter+questions - CHAPTER 11...

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