Review 4 - BANK 1005(11941) Derivatives and Securities...

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BANK 1005(11941) Derivatives and Securities Markets Page 1 of 11 Review 4 (Topic 4 – Financial Institutions) Questions and Problems You should answer the following Questions and Problems in your textbook: Chapter 3: 4, 5, 6, 9, 11 Chapter 4: 1, 5, 7 Chapter 5: 1, 5, 6, 8 Consider this feedback as a guide toward writing a sound explanation, not as the “best answers”. You do need to employ your learning and thinking to craft a ‘good answer’. Good writing skills will also result in high quality discussions and arguments. I have provided some comments to hopefully assist you in thinking deeper. Learning about the financial markets involves using a “package” of resources and thinking, rather than just learning these “answers”. You need to show real understanding of the issues acquired from your learning and thinking in your explanations/arguments. Often, according to the authors of your book (in the preface), the problems and questions have been chosen to “provoke debate rather than a search for the ‘correct answer’.” Take these questions and the suggested feedback in this spirit! CHAPTER 3 4. The Wallis Committee argued that costs are unnecessarily high in Australian banking. What did the Committee attribute these high costs to and how did it suggest that they can be reduced? The Wallis Committee attributed the high costs of banking in Australia compared with other countries to the: greater proportion of transactions in Australia are done over-the-counter rather than by much cheaper electronic means; over-extended branch network; and failure of Australian banks to charge the full cost of the services provided, thereby encouraging customers to over-use them and impose costs on the banks. The Committee recommended that banks be allowed to adopt user-pays pricing so that customers would no longer have an incentive to carry out transactions that create losses for the banks. 5. What is asset/liability management and why do banks make use of it? What assets and liabilities are used in it? Asset/liability management is the use of market transactions to change the structure of a bank’s balance sheet. The aims of making these changes are to protect the bank from movements in interest rates (including changes in the yield curve) and other market prices or to take advantage of projected market changes; and to increase the bank’s interest rate margin. [How are these aims achieved by asset and liability management?] Asset/liability management can be implemented by: buying or selling government securities; buying or selling mortgage-backed securities; issuing or retiring certificates of deposit; and buying and selling derivative products.
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BANK 1005(11941) Derivatives and Securities Markets Page 2 of 11 Review 4 (Topic 4 – Financial Institutions) [You should understand, and be able to explain, how each of these actions potentially results in the required outcomes. What are these outcomes that banks wish to achieve?] 6. Describe off-balance-sheet activities and financing. Why are they attractive to
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This note was uploaded on 10/19/2011 for the course BANK 1005 taught by Professor Hb during the Three '09 term at South Australia.

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Review 4 - BANK 1005(11941) Derivatives and Securities...

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