Tutorial Questions Following Topic 1
Question 1 Pricing Commercial Loans
Finch Corporation is a new business client for First Commerce National Bank and has asked for a oneyear, $10 million loan at an annual interest rate of 6%. The company plans to keep
Tutorial Question Following Topic 9
Why do banks engage in international banking activities?
What impact did the financial crisis of 200809 have on international banking?
Why do governments allow foreign banks into their c
Tutorial Questions Following Topic 3
Conglomerate Bank has $5 million in cash reserves with the Fed in excess of its reserve requirements,
$5 million in T-Bills, and a credit line of $10 million to borrow in the repo market. It currently has le
Tutorial Questions Following Topic 2
Question 1: Outline how the Australian payments system operates. Why is it important for this
system to be efficient and reliable?
Question 2: What is prudential supervision and who is responsible for it in the Austral
Solution to Tutorial Following Topic 7
Solution Question 1
a. Tier I capital decreases to $400,000 and total capital decreases to
$400,000+$400,000 = $800,000.
Cash has a 0 risk weight so risk-weighted assets do not change.
Thus, the Tier I ratio d
Tutorial Questions Following Topic 5
Consider the following simple banks balance sheet:
Floating rate loans:
Other assets :
Fixed rate deposits:
a. Is the bank ARBL or LRBA?
b. What are the banks NIM and NII
Tutorial Questions Following Topic 6
An FI originates a pool of 500 30-year mortgages, each averaging $150,000 with an annual mortgage
coupon rate of 8%. Assume that the GNMA credit risk insurance fee is 6 basis points and that the FI's
Tutorial Questions Following Topic 7
A. Onshore Bank has $20 million in assets, with risk-adjusted assets of $10 million. Tier I capital is $500,000 and
Tier II capital is $400,000. How will each of the following transactions affect the value o
Solution to Tutorial Following Topic 1
Solution to Question 1
Interest Income from Loan
Loan Commitment Fee
Cash Management Fee
Interest on deposit
Expected cost of
Labour costs and o
Solution to Tutorial Following Topic 5
a. The bank is ARBL as RSA > RSL.
b. NII = 90(0.085) 90(0.045) = 7.65 4.05 = 3.6 and NIM = 3.6/100 = 0.036 3.6%
c. NI = 3.6 2.6 = 1.0
d. ROE = 1/10 = 0.1 = 10%
ROA = 1/100 = 0.01 = 1%
EM = 100/
Solution to Tutorial Following Topic 2
1. Outline how the Australian payments system operates. Why is it important for this system to
be efficient and reliable?
Answer: The payments system is the mechanism by which the funds are transferred from one
Solution to Tutorial Following Topic 3
a. $22 million (=5m+5m+10m+2m)
c. Net liquidity =22-1=21million
d. $20.5 million [=cfw_(5 - 5m 0.10)+5m+10m+2m-1]
a. Assuming that the decrease in loans is off
Tutorial Questions Following Topic 4
Given the following information on Big State Bank, and on its peer group, evaluate the strengths and
weaknesses of the bank. What additional information would you want in order to conduct a more in-depth