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Bus 206 final
Bus 206 Final: chapter 19
| Question | Answer |
|---|---|
| board members who are also members of the bank | inside directors |
| what is the conflict of interest with inside directors? | decisions as board members may affect their jobs as managers |
| board members who are not members of the bank | outside directors |
| what should be the main goal of management? | maximize shareholder wealth |
| what does a bank's strategy involve? | the management of sources of funds and uses of funds |
| will a bank's decision on sources of funds influence interest expense? | yes |
| will a bank’s asset structure influence its interest revenue | yes |
| what do financial banks rely heavily on? | financial markets |
| important functions of bank directors | compensation system for executives; proper disclosure of financial conditions and performance; oversee growth strategies; oversee change in capital structure; asses bank's performance |
| when shareholders with large amounts of stock attempt to influence bank manager's approaches | shareholder activism |
| how does market for corporate control serve as a form of governance? | bank managers are aware they can lose their jobs |
| how is cash shortfall resolved? | by creating additional short term liabilities of selling assets |
| how can banks ensure sufficient liquidity? | by using their funds to purchase short term treasury securities because they can sell them quickly |
| involves the sale of assets by the bank to a trustee, who issues securities collateralized by the assets | securitization |
| the difference between interest payments received and interest paid | net interest margin |
| if a bank's liabilities are more rate sensitive than its assets, what will happen if interest rates increase? | the bank's net interest margin will decrease |
| rate sensitive assets minus rate sensitive liabilities | Gap |
| what does a gap of zero show? | the net interest margin should not be significantly influenced by rates |
| what are banks with negative gaps afraid of? | an increase in rates because it could reduce their net interest margin |
| interest rate risk can be reduced by | maturity matching, using floating rate loans, interest rate futures contracts, interest rate swaps, or interest rate caps |
| Match each deposit’s maturity with an asset of the same maturity | maturity matching |
| Support L-T assets with S-T deposits without exposure to interest rate risk | floating rate loans |
| Lock in the price at which financial instruments can be purchased or sold | interest rate futures contracts |
| Arrangement to exchange periodic CFs based on specified interest rates | interest rate swaps |
| how can a bank minimize credit risk? | use most of its funds to purchase treasury securities |
| how can a bank maximize its return? | use most of its funds to provide credit card and consumer loans |
| 4 ways to reduce credit risk? | diversify loans, diversify loans internationally, sell risky loans, revise loan portfolio in response to economy |
| results from changes in the value of securities bank holds due to changes in financial market conditions | market risk |
Created by:
devenmccormick
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