(a) Why do you suppose Union Planters purchases investments, rather than simply making loans? Why does it purchase investments that vary in nature both in terms of their maturities and in type (debt versus stock)? 1. They may have excess funds that they haven’t loaned out yet and instead of having the money just sit there the bank manager may decide that it could earn more revenue by choosing to invest. 2. Depending on the situation the bank manager may also feel that they can make more money by investing the excess funds rather than lending the money out. For example right now interest rates are at an all-time low and they may feel like the return on the interest is not enough compared to investing. 3. The bank manager may feel that these investments will mature and be worth more in the future so they may choose to hold long term to create more revenue. (b) How must Union Planters account for its investments in each of the two categories? 1.
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