Study Questions for exam

List stock valuation models and give an answer the

following question.
Classify mortgages in terms of their types and give their
main characteristics.
Explain the theory of purchasing power parity and its
relationship with changes in foreign exchange rates.
Explain the efects of factors on the exchange rate and
response of exchange rate.
Explain subprime crisis in the U!.
Explain interest parity condition and solve the following
problem.
Explain Exchange "ate "egimes in the #nternational
$inancial ystem today
Explain currency board system by referring %osnia and
&er'egovina
Explain the general managerial (elds of banks and their
relationship with risks and returns
Explain the measures of bank performance and de(ne
return on assets and return on equity
Explain the relationship between !symmetric #nformation
and $inancial "egulation and consequences of this
relationship
Explain the invention and development of %asel !ccord
shortly
Explain the diferences in costs of rescuing banks among
countries
Explain the likely burdens of multiple regulatory agencies
in the (nancial sector in the U!
Explanation the reasoning for eparation of the %anking
and )ther $inancial ervice #ndustries and universal
banking model
Explain the reasons behind the invention and
development of mutual funds and de(ne types of mutual
funds
Explain types and investments of insurance companies
and their role in the long term economic development
and their in*uence on the invested companies or
institutions
Explain types and investments of pension funds and their
role in the long term economic development and their
in*uence on the invested companies or institutions
+he balance sheet of +ri%ank starts with an allowance
for loan losses of ,-... million. /uring the year0
+ri%ank charges of worthless loans of ,1.23 million0
recovers ,1.44 million on loans previously charged
of0 and charges current income for a ,-.32 million
provision for loan losses. Calculate the end5of5year
allowance for loan losses.
If you are a banker and expect interest rates to rise in the future, would you want to make short-term or long-term loans?
Banking has become a more dynamic industry because of more active liability management. Is this statement true,
false, or uncertain? !xplain your answer
"hat bank regulations are designed to reduce moral ha#ard problems created by deposit insurance? "ill they completely
eliminate the moral ha#ard problem?
If inflation had not risen in the $%&'s and $%('s, the banking industry might be healthier today. Is this statement true,
false, or uncertain? !xplain your answer
"hat is late trading when referred to by mutual funds?
"hat is market timingwhen referred to by mutual funds?
"hy do people choose to buy insurance even if their expected loss is less than the payments they will make to the
insurance company?
)istinguish between adverse selection and moral ha#ard as they relate to the insurance industry.
"hat was the motivation behind legislation separating commercial banking from investment banking?
"hat is the difference between a hostile takeover and a merger?
* bank issues a +$'',''' variable-rate ,'-year mortgage with a nominal annual rate of -../. If the re0uired rate drops to -.'/
after the first six months, what is the impact on the interest income for the first $1 months?
* bank issues a +$'',''' fixed-rate ,'-year mortgage with a nominal annual rate of -../. If the re0uired rate drops to -.'/
immediately after the mortgage is issued, what is the impact on the value of the mortgage?
2alculate the duration of a commercial loan. 3he face value of the loan is +1,''','''. It re0uires simple interest yearly, with an
*45 of 6/. 3he loan is due in four years. 3he current market rate for such loans is 6/.
* bank7s balance sheet contains interest-sensitive assets of +16' million and interest-sensitive liabilities of +-&. million. 2alculate
the income gap.
If the pension fund you manage expects to have an inflow of +$1' million six months from now, what forward contract would you
seek to enter into to lock in current interest rates?
If the portfolio you manage is holding +1. million of &s of 1'1% 3reasury bonds with a price of $$', what forward contract would
you enter into to hedge the interest-rate risk on these bonds over the coming year?
If at the expiration date, the deliverable 3reasury bond is selling for $'$ but the 3reasury bond futures contract is selling for $'1,
what will happen to the futures price? !xplain your answer.
If you buy a +$'',''' 8ebruary 3reasury bond contract for $'6 and the price of the deliverable 3reasury bond at the expiration
date is $'1, what is your profit or loss on the contract?
9aura, a bond portfolio manager, administers a +$' million portfolio. 3he portfolio currently has a duration of 6.. years. 9aura
wants to shorten the duration to & years using 3-bill futures. 3-bill futures have a duration of '.1. years and are trading at +%(.
:face value ; +$,'''<. =ow is this accomplished?