Chap008金融机构管理课后题答案

金融机构管理第九章课后习题部分答案（1、2、3、6、11、12、13、16）1. 有效期限衡量的是经济定义中资产和负债的平均期限。

有效期限的经济含义是资产价值对于利率变化的利率敏感性（或利率弹性）。

有效期限的严格定义是一种以现金流量的相对现值为权重的加权平均到期期限。

有效期限与到期期限的不同在于，有效期限不仅考虑了资产（或负债）的期限，还考虑了期间发生的现金流的再投资利率。

2.息票债券面值价值= $1,00利率= 0.10 每年付一次息到期收益率=0.08 期限= 2时间现金流PVIF PV ofCF PV*CF *T1 $100.00 0.92593$92.59 $92.592 $1,100.00 0.85734$943.07 $1,886.15价格=$1,035.67分子= $1,978.74有效期限=1.9106= 分子/价格到期收益率=0.10时间现金流PVIF PV ofCF PV*CF *T1 $100.00 0.90909$90.91 $90.912 $1,100.00 0.82645$909.09 $1,818.18价格=$1,000.00分子= $1,909.09有效期限=1.9091= 分子/价格到期收益率=0.12时间现金流PVIF PV ofCF PV*CF *T1 $100.00 0.892$89.29 $89.292 $1,100.00 0.79719$876.91 $1,753.83价格=$966.20分子= $1,843.11有效期限=1.9076= 分子/价格b. 到期收益率上升时，有限期限减少。

c.零息债券面值价值= $1,00利率= 0.00到期收益率=0.08 期限= 2时间现金流PVIF PV ofCF PV*CF *T1 $0.00 0.92593$0.00 $0.002 $1,000.00 0.85734$857.34 $1,714.68价格=$857.34分子= $1,714.68有效期限=2.000= 分子/价格到期收益率=0.10时间现金流PVIF PV ofCF PV*CF *T1 $0.00 0.90909$0.00 $0.002 $1,000.00 0.82645$826.45 $1,652.89价格=$826.45分子= $1,652.89有效期限=2.000= 分子/价格到期收益率=0.12时间现金流PVIF PV ofCF PV*CF *T1 $0.00 0.892$0.00 $0.002 $1,000.00 0.79719 $797.19 $1,594.39价格 = $797.19分子 =$1,594.39有效期限 =2.0000= 分子/价格d.到期收益率的变化不影响零息债券的有效期限。

Chapter OneWhy Are Financial Intermediaries SpecialChapter OutlineIntroductionFinancial Intermediaries’ SpecialnessInformation CostsLiquidity and Price RiskOther Special ServicesOther Aspects of SpecialnessThe Transmission of Monetary PolicyCredit AllocationIntergenerational Wealth Transfers or Time Intermediation Payment ServicesDenomination IntermediationSpecialness and RegulationSafety and Soundness RegulationMonetary Policy RegulationCredit Allocation RegulationConsumer Protection RegulationInvestor Protection RegulationEntry RegulationThe Changing Dynamics of SpecialnessTrends in the United StatesFuture TrendsGlobal IssuesSummarySolutions for End-of-Chapter Questions and Problems: Chapter One1. Identify and briefly explain the five risks common to financialinstitutions.Default or credit risk of assets, interest rate risk caused by maturity mismatches between assets and liabilities, liability withdrawal or liquidity risk, underwriting risk, and operating cost risks.2. Explain how economic transactions between household savers of funds and corporate users of funds would occur in a world without financial intermediaries (FIs).In a world without FIs the users of corporate funds in the economy would have to approach directly the household savers of funds in order to satisfy their borrowing needs. This process would be extremely costly because of the up-front information costs faced by potential lenders. Cost inefficiencies would arise with the identification of potential borrowers, the pooling of small savings into loans of sufficient size to finance corporate activities, and the assessment of risk and investment opportunities. Moreover, lenders would have to monitor the activities of borrowers over each loan's life span. The net result would be an imperfect allocation of resources in an economy.3. Identify and explain three economic disincentives that probably woulddampen the flow of funds between household savers of funds and corporate users of funds in an economic world without financial intermediaries.Investors generally are averse to purchasing securities directly because of (a) monitoring costs, (b) liquidity costs, and (c) price risk. Monitoring the activities of borrowers requires extensive time, expense, and expertise. As a result, households would prefer to leave this activity to others, and by definition, the resulting lack of monitoring would increase the riskiness of investing in corporate debt and equity markets. The long-term nature of corporate equity and debt would likely eliminate at least a portion of those households willing to lend money, as the preference of many for near-cash liquidity would dominate the extra returns which may be available. Third, the price risk of transactions on the secondary markets would increase without the information flows and services generated by high volume.4. Identify and explain the two functions in which FIs may specialize thatenable the smooth flow of funds from household savers to corporate users.FIs serve as conduits between users and savers of funds by providing a brokerage function and by engaging in the asset transformation function. The brokerage function can benefit both savers and users of funds and can vary according to the firm. FIs may provide only transaction services, such as discount brokerages, or they also may offer advisory services which helpreduce information costs, such as full-line firms like Merrill Lynch. The asset transformation function is accomplished by issuing their own securities, such as deposits and insurance policies that are more attractive to household savers, and using the proceeds to purchase the primary securities of corporations. Thus, FIs take on the costs associated with the purchase of securities.5. In what sense are the financial claims of FIs considered secondarysecurities, while the financial claims of commercial corporations areconsidered primary securities How does the transformation process, orintermediation, reduce the risk, or economic disincentives, to the saversThe funds raised by the financial claims issued by commercial corporations are used to invest in real assets. These financial claims, which are considered primary securities, are purchased by FIs whose financial claims therefore are considered secondary securities. Savers who invest in the financial claims of FIs are indirectly investing in the primary securities of commercial corporations. However, the information gathering and evaluation expenses, monitoring expenses, liquidity costs, and price risk of placing theinvestments directly with the commercial corporation are reduced because ofthe efficiencies of the FI.6. Explain how financial institutions act as delegated monitors. Whatsecondary benefits often accrue to the entire financial system because of this monitoring processBy putting excess funds into financial institutions, individual investors give to the FIs the responsibility of deciding who should receive the money and of ensuring that the money is utilized properly by the borrower. In this sense the depositors have delegated the FI to act as a monitor on their behalf. The FI can collect information more efficiently than individual investors. Further, the FI can utilize this information to create new products, such as commercial loans, that continually update the information pool. This more frequent monitoring process sends important informational signals to other participants in the market, a process that reduces information imperfection and asymmetry between the ultimate sources and users of funds in the economy.7. What are five general areas of FI specialness that are caused byproviding various services to sectors of the economyFirst, FIs collect and process information more efficiently than individual savers. Second, FIs provide secondary claims to household savers which often have better liquidity characteristics than primary securities such as equities and bonds. Third, by diversifying the asset base FIs provide secondary securities with lower price-risk conditions than primary securities. Fourth, FIs provide economies of scale in transaction costs because assets are purchased in larger amounts. Finally, FIs provide maturity intermediation to the economy which allows the introduction of additional types of investment contracts, such as mortgage loans, that are financed with short-term deposits.8. How do FIs solve the information and related agency costs when householdsavers invest directly in securities issued by corporations What areagency costsAgency costs occur when owners or managers take actions that are not in the best interests of the equity investor or lender. These costs typically result from the failure to adequately monitor the activities of the borrower. If no other lender performs these tasks, the lender is subject to agency costs as the firm may not satisfy the covenants in the lending agreement. Because the FI invests the funds of many small savers, the FI has a greater incentive to collect information and monitor the activities of the borrower.9. What often is the benefit to the lenders, borrowers, and financialmarkets in general of the solution to the information problem provided by the large financial institutionsOne benefit to the solution process is the development of new secondary securities that allow even further improvements in the monitoring process. An example is the bank loan that is renewed more quickly than long-term debt. The renewal process updates the financial and operating information of thefirm more frequently, thereby reducing the need for restrictive bond covenants that may be difficult and costly to implement.10. How do FIs alleviate the problem of liquidity risk faced by investors whowish to invest in the securities of corporationsLiquidity risk occurs when savers are not able to sell their securities on demand. Commercial banks, for example, offer deposits that can be withdrawn at any time. Yet the banks make long-term loans or invest in illiquid assets because they are able to diversify their portfolios and better monitor theperformance of firms that have borrowed or issued securities. Thus individual investors are able to realize the benefits of investing in primary assets without accepting the liquidity risk of direct investment.11. How do financial institutions help individual savers diversify theirportfolio risks Which type of financial institution is best able toachieve this goalMoney placed in any financial institution will result in a claim on a more diversified portfolio. Banks lend money to many different types of corporate, consumer, and government customers, and insurance companies have investmentsin many different types of assets. Investment in a mutual fund may generate the greatest diversification benefit because of the fund’s investment in a wide array of stocks and fixed income securities.12. How can financial institutions invest in high-risk assets with fundingprovided by low-risk liabilities from saversDiversification of risk occurs with investments in assets that are not perfectly positively correlated. One result of extensive diversification is that the average risk of the asset base of an FI will be less than the average risk of the individual assets in which it has invested. Thus individual investors realize some of the returns of high-risk assets without accepting the corresponding risk characteristics.13. How can individual savers use financial institutions to reduce thetransaction costs of investing in financial assetsBy pooling the assets of many small investors, FIs can gain economies of scale in transaction costs. This benefit occurs whether the FI is lending to a corporate or retail customer, or purchasing assets in the money and capital markets. In either case, operating activities that are designed to deal in large volumes typically are more efficient than those activities designed for small volumes.14. What is maturity intermediation What are some of the ways in which therisks of maturity intermediation are managed by financial intermediariesIf net borrowers and net lenders have different optimal time horizons, FIscan service both sectors by matching their asset and liability maturities through on- and off-balance sheet hedging activities and flexible access to the financial markets. For example, the FI can offer the relatively short-term liabilities desired by households and also satisfy the demand for long-term loans such as home mortgages. By investing in a portfolio of long-and short-term assets that have variable- and fixed-rate components, the FI can reduce maturity risk exposure by utilizing liabilities that have similar variable- and fixed-rate characteristics, or by using futures, options, swaps, and other derivative products.15. What are five areas of institution-specific FI specialness, and whichtypes of institutions are most likely to be the service providersFirst, commercial banks and other depository institutions are key players for the transmission of monetary policy from the central bank to the rest of the economy. Second, specific FIs often are identified as the major source of finance for certain sectors of the economy. For example, S&Ls and savings banks traditionally serve the credit needs of the residential real estate market. Third, life insurance and pension funds commonly are encouraged to provide mechanisms to transfer wealth across generations. Fourth, depository institutions efficiently provide payment services to benefit the economy. Finally, mutual funds provide denomination intermediation by allowing small investors to purchase pieces of assets with large minimum sizes such as negotiable CDs and commercial paper issues.16. How do depository institutions such as commercial banks assist in theimplementation and transmission of monetary policyThe Federal Reserve Board can involve directly the commercial banks in the implementation of monetary policy through changes in the reserve requirements and the discount rate. The open market sale and purchase of Treasurysecurities by the Fed involves the banks in the implementation of monetary policy in a less direct manner.17. What is meant by credit allocation regulation What social benefit isthis type of regulation intended to provideCredit allocation regulation refers to the requirement faced by FIs to lend to certain sectors of the economy, which are considered to be socially important. These may include housing and farming. Presumably the provision of credit to make houses more affordable or farms more viable leads to a more stable and productive society.18. Which intermediaries best fulfill the intergenerational wealth transferfunction What is this wealth transfer processLife insurance and pension funds often receive special taxation relief and other subsidies to assist in the transfer of wealth from one generation to another. In effect, the wealth transfer process allows the accumulation of wealth by one generation to be transferred directly to one or more younger generations by establishing life insurance policies and trust provisions in pension plans. Often this wealth transfer process avoids the full marginal tax treatment that a direct payment would incur.19. What are two of the most important payment services provided by financialinstitutions To what extent do these services efficiently providebenefits to the economyThe two most important payment services are check clearing and wire transfer services. Any breakdown in these systems would produce gridlock in the payment system with resulting harmful effects to the economy at both the domestic and potentially the international level.20. What is denomination intermediation How do FIs assist in this processDenomination intermediation is the process whereby small investors are able to purchase pieces of assets that normally are sold only in large denominations. Individual savers often invest small amounts in mutual funds. The mutual funds pool these small amounts and purchase negotiable CDs which can only be sold in minimum increments of $100,000, but which often are sold in million dollar packages. Similarly, commercial paper often is sold only in minimum amounts of $250,000. Therefore small investors can benefit in the returns and low risk which these assets typically offer.21. What is negative externality In what ways do the existence of negativeexternalities justify the extra regulatory attention received byfinancial institutionsA negative externality refers to the action by one party that has an adverse affect on some third party who is not part of the original transaction. For example, in an industrial setting, smoke from a factory that lowers surrounding property values may be viewed as a negative externality. For financial institutions, one concern is the contagion effect that can arise when the failure of one FI can cast doubt on the solvency of otherinstitutions in that industry.22. If financial markets operated perfectly and costlessly, would there be aneed for financial intermediariesTo a certain extent, financial intermediation exists because of financial market imperfections. If information is available costlessly to all participants, savers would not need intermediaries to act as either their brokers or their delegated monitors. However, if there are social benefits to intermediation, such as the transmission of monetary policy or credit allocation, then FIs would exist even in the absence of financial market imperfections.23. What is mortgage redliningMortgage redlining occurs when a lender specifically defines a geographic area in which it refuses to make any loans. The term arose because of the area often was outlined on a map with a red pencil.24. Why are FIs among the most regulated sectors in the world When is netregulatory burden positiveFIs are required to enhance the efficient operation of the economy. Successful financial intermediaries provide sources of financing that fund economic growth opportunity that ultimately raises the overall level of economic activity. Moreover, successful financial intermediaries provide transaction services to the economy that facilitate trade and wealth accumulation.Conversely, distressed FIs create negative externalities for the entire economy. That is, the adverse impact of an FI failure is greater than just the loss to shareholders and other private claimants on the FI's assets. For example, the local market suffers if an FI fails and other FIs also may be thrown into financial distress by a contagion effect. Therefore, since some of the costs of the failure of an FI are generally borne by society at large, the government intervenes in the management of these institutions to protect society's interests. This intervention takes the form of regulation.However, the need for regulation to minimize social costs may impose private costs to the firms that would not exist without regulation. This additional private cost is defined as a net regulatory burden. Examples include the cost of holding excess capital and/or excess reserves and the extra costs of providing information. Although they may be socially beneficial, these costs add to private operating costs. To the extent that these additional costshelp to avoid negative externalities and to ensure the smooth and efficient operation of the economy, the net regulatory burden is positive.25. What forms of protection and regulation do regulators of FIs impose toensure their safety and soundnessRegulators have issued several guidelines to insure the safety and soundness of FIs:a. FIs are required to diversify their assets. For example, banks cannotlend more than 10 percent of their equity to a single borrower.b. FIs are required to maintain minimum amounts of capital to cushion anyunexpected losses. In the case of banks, the Basle standards require aminimum core and supplementary capital of 8 percent of their risk-adjusted assets.c. Regulators have set up guaranty funds such as BIF for commercial banks,SIPC for securities firms, and state guaranty funds for insurance firms to protect individual investors.d. Regulators also engage in periodic monitoring and surveillance, such ason-site examinations, and request periodic information from the FIs.26. In the transmission of monetary policy, what is the difference betweeninside money and outside money How does the Federal Reserve Board try to control the amount of inside money How can this regulatory positioncreate a cost for the depository financial institutionsOutside money is that part of the money supply directly produced andcontrolled by the Fed, for example, coins and currency. Inside money refers to bank deposits not directly controlled by the Fed. The Fed can influence this amount of money by reserve requirement and discount rate policies. In cases where the level of required reserves exceeds the level considered optimal by the FI, the inability to use the excess reserves to generate revenue may be considered a tax or cost of providing intermediation.27. What are some examples of credit allocation regulation How can thisattempt to create social benefits create costs to the private institutionThe qualified thrift lender test (QTL) requires thrifts to hold 65 percent of their assets in residential mortgage-related assets to retain the thrift charter. Some states have enacted usury laws that place maximum restrictions on the interest rates that can be charged on mortgages and/or consumer loans. These types of restrictions often create additional operating costs to the FIand almost certainly reduce the amount of profit that could be realizedwithout such regulation.28. What is the purpose of the Home Mortgage Disclosure Act What are thesocial benefits desired from the legislation How does the implementation of this legislation create a net regulatory burden on financialinstitutionsThe HMDA was passed by Congress to prevent discrimination in mortgage lending. The social benefit is to ensure that everyone who qualifies financially is provided the opportunity to purchase a house should they so desire. The regulatory burden has been to require a written statement indicating the reasons why credit was or was not granted. Since 1990, the federal regulators have examined millions of mortgage transactions from more than 7,700institutions each calendar quarter.29. What legislation has been passed specifically to protect investors whouse investment banks directly or indirectly to purchase securities Give some examples of the types of abuses for which protection is provided.The Securities Acts of 1933 and 1934 and the Investment Company Act of 1940 were passed by Congress to protect investors against possible abuses such as insider trading, lack of disclosure, outright malfeasance, and breach of fiduciary responsibilities.30. How do regulations regarding barriers to entry and the scope of permittedactivities affect the charter value of financial institutionsThe profitability of existing firms will be increased as the direct andindirect costs of establishing competition increase. Direct costs include the actual physical and financial costs of establishing a business. In the case of FIs, the financial costs include raising the necessary minimum capital to receive a charter. Indirect costs include permission from regulatory authorities to receive a charter. Again in the case of FIs this cost involves acceptable leadership to the regulators. As these barriers to entry are stronger, the charter value for existing firms will be higher.31. What reasons have been given for the growth of investment companies atthe expense of “traditional” banks and insurance companiesThe recent growth of investment companies can be attributed to two major factors:a. Investors have demanded increased access to direct securities markets.Investment companies and pension funds allow investors to take positions in direct securities markets while still obtaining the riskdiversification, monitoring, and transactional efficiency benefits offinancial intermediation. Some experts would argue that this growth isthe result of increased sophistication on the part of investors; otherswould argue that the ability to use these markets has caused theincreased investor awareness. The growth in these assets is inarguable.b. Recent episodes of financial distress in both the banking and insuranceindustries have led to an increase in regulation and governmentaloversight, thereby increasing the net regulatory burden of“traditional” companies. As such, the costs of intermediation haveincreased, which increases the cost of providing services to customers.32. What are some of the methods which banking organizations have employed toreduce the net regulatory burden What has been the effect onprofitabilityThrough regulatory changes, FIs have begun changing the mix of businessproducts offered to individual users and providers of funds. For example, banks have acquired mutual funds, have expanded their asset and pension fund management businesses, and have increased the security underwriting activities. In addition, legislation that allows banks to establish branches anywhere inthe United States has caused a wave of mergers. As the size of banks has grown, an expansion of possible product offerings has created the potentialfor lower service costs. Finally, the emphasis in recent years has been on products that generate increases in fee income, and the entire bankingindustry has benefited from increased profitability in recent years.33. What characteristics of financial products are necessary for financialmarkets to become efficient alternatives to financial intermediaries Can you give some examples of the commoditization of products which werepreviously the sole property of financial institutionsFinancial markets can replace FIs in the delivery of products that (1) have standardized terms, (2) serve a large number of customers, and (3) are sufficiently understood for investors to be comfortable in assessing their prices. When these three characteristics are met, the products often can be treated as commodities. One example of this process is the migration of over-the-counter options to the publicly traded option markets as trading volume grows and trading terms become standardized.34. In what way has Regulation 144A of the Securities and Exchange Commissionprovided an incentive to the process of financial disintermediationChanging technology and a reduction in information costs are rapidly changing the nature of financial transactions, enabling savers to access issuers of securities directly. Section 144A of the SEC is a recent regulatory change that will facilitate the process of disintermediation. The private placement of bonds and equities directly by the issuing firm is an example of a product that historically has been the domain of investment bankers. Although historically private placement assets had restrictions against trading, regulators have given permission for these assets to trade among large investors who have assets of more than $100 million. As the market grows, this minimum asset size restriction may be reduced.。

Chapter 08Index Models Multiple Choice Questions1.As diversification increases， the total variance of a portfolio approachesA. 0.B。

1.C。

t he variance of the market portfolio.D. i nfinity.E。

N one of the options2。

As diversification increases， the standard deviation of a portfolio approachesA. 0.B。

1.C. i nfinity.D。

t he standard deviation of the market portfolio.E。

N one of the options3。

As diversification increases, the firm-specific risk of a portfolio approachesA. 0。

B。

1.C. i nfinity.D. （n—1) × n。

4。

As diversification increases, the unsystematic risk of a portfolio approachesA. 1。

B. 0。

C. i nfinity。

D. （n— 1）× n。

5.As diversification increases, the unique risk of a portfolio approachesA. 1。

B. 0.C。

i nfinity。

D。

(n— 1）× n。

6.The index model was first suggested byA。

G raham。

B. M arkowitz.C. M iller。

D。

C h a p007金融机构管理课后题答案Chapter SevenRisks of Financial IntermediationChapter Outline IntroductionInterest Rate RiskMarket RiskCredit RiskOff-Balance-Sheet RiskTechnology and Operational RiskForeign Exchange RiskCountry or Sovereign RiskLiquidity RiskInsolvency RiskOther Risks and the Interaction of RisksSummarySolutions for End-of-Chapter Questions and Problems: Chapter Seven1.What is the process of asset transformation performed by a financial institution? Whydoes this process often lead to the creation of interest rate risk? What is interest rate risk?Asset transformation by an FI involves purchasing primary assets and issuing secondary assets as a source of funds. The primary securities purchased by the FI often have maturity and liquidity characteristics that are different from the secondary securities issued by the FI. For example, a bank buys medium- to long-term bonds and makes medium-term loans with funds raised by issuing short-term deposits.Interest rate risk occurs because the prices and reinvestment income characteristics of long-term assets react differently to changes in market interest rates than the prices and interest expense characteristics of short-term deposits. Interest rate risk is the effect on prices (value) and interim cash flows (interest coupon payment) caused by changes in the level of interest rates during the life of the financial asset.2.What is refinancing risk? How is refinancing risk part of interest rate risk? If an FI fundslong-term fixed-rate assets with short-term liabilities, what will be the impact on earnings of an increase in the rate of interest? A decrease in the rate of interest?Refinancing risk is the uncertainty of the cost of a new source of funds that are being used to finance a long-term fixed-rate asset. This risk occurs when an FI is holding assets with maturities greater than the maturities of its liabilities. For example, if a bank has a ten-year fixed-rate loan funded by a 2-year time deposit, the bank faces a risk of borrowing new deposits, or refinancing, at a higher rate in two years. Thus, interest rate increases would reduce net interest income. The bank would benefit if the rates fall as the cost of renewing the deposits would decrease, while the earning rate on the assets would not change. In this case, net interest income would increase.3.What is reinvestment risk? How is reinvestment risk part of interest rate risk? If an FIfunds short-term assets with long-term liabilities, what will be the impact on earnings of a decrease in the rate of interest? An increase in the rate of interest?Reinvestment risk is the uncertainty of the earning rate on the redeployment of assets that have matured. This risk occurs when an FI holds assets with maturities that are less than the maturities of its liabilities. For example, if a bank has a two-year loan funded by a ten-year fixed-rate time deposit, the bank faces the risk that it might be forced to lend or reinvest the money at lower rates after two years, perhaps even below the deposit rates. Also, if the bank receives periodic cash flows, such as coupon payments from a bond or monthly payments on a loan, these periodic cash flows will also be reinvested at the new lower (or higher) interest rates. Besides the effect on the income statement, this reinvestment risk may cause the realized yields on the assets to differ from the a priori expected yields.4. The sales literature of a mutual fund claims that the fund has no risk exposure since itinvests exclusively in federal government securities that are free of default risk. Is thisclaim true? Explain why or why not.Although the fund's asset portfolio is comprised of securities with no default risk, the securities remain exposed to interest rate risk. For example, if interest rates increase, the market value of the fund's Treasury security portfolio will decrease. Further, if interest rates decrease, the realized yield on these securities will be less than the expected rate of return because of reinvestment risk. In either case, investors who liquidate their positions in the fund may sell at a Net Asset Value (NAV) that is lower than the purchase price.5. What is economic or market value risk? In what manner is this risk adversely realized inthe economic performance of an FI?Economic value risk is the exposure to a change in the underlying value of an asset. As interest rates increase (or decrease), the value of fixed-rate assets decreases (or increases) because of the discounted present value of the cash flows. To the extent that the change in market value of the assets differs from the change in market value of the liabilities, the difference is realized in the market value of the equity of the FI. For example, for most depository FIs, an increase in interest rates will cause asset values to decrease more than liability values. The difference will cause the market value, or share price, of equity to decrease.6. A financial institution has the following balance sheet structure:Assets Liabilities and EquityCash $1,000 Certificate of Deposit $10,000 Bond $10,000 Equity $1,000 Total Assets $11,000 Total Liabilities and Equity $11,000 The bond has a 10-year maturity and a fixed-rate coupon of 10 percent. The certificate of deposit has a 1-year maturity and a 6 percent fixed rate of interest. The FI expects noadditional asset growth.a. What will be the net interest income (NII) at the end of the first year? Note: Netinterest income equals interest income minus interest expense.Interest income $1,000 $10,000 x 0.10Interest expense 600 $10,000 x 0.06Net interest income (NII) $400b. If at the end of year 1 market interest rates have increased 100 basis points (1 percent),what will be the net interest income for the second year? Is the change in NII causedby reinvestment risk or refinancing risk?Interest income $1,000 $10,000 x 0.10Interest expense 700 $10,000 x 0.07Net interest income (NII) $300The decrease in net interest income is caused by the increase in financing cost without a corresponding increase in the earnings rate. Thus, the change in NII is caused byrefinancing risk. The increase in market interest rates does not affect the interest income because the bond has a fixed-rate coupon for ten years. Note: this answer makes noassumption about reinvesting the first year’s interest income at the new higher rate.c. Assuming that market interest rates increase 1 percent, the bond will have a value of$9,446 at the end of year 1. What will be the market value of the equity for the FI?Assume that all of the NII in part (a) is used to cover operating expenses or isdistributed as dividends.Cash $1,000 Certificate of deposit $10,000Bond $9,446 Equity $ 446Total assets $10,446 $10,446d. If market interest rates had decreased 100 basis points by the end of year 1, would themarket value of equity be higher or lower than $1,000? Why?The market value of the equity would be higher ($1,600) because the value of the bond would be higher ($10,600) and the value of the CD would remain unchanged.e. What factors have caused the change in operating performance and market value forthis firm?The operating performance has been affected by the changes in the market interest rates that have caused the corresponding changes in interest income, interest expense, and net interest income. These specific changes have occurred because of the unique maturities of the fixed-rate assets and fixed-rate liabilities. Similarly, the economic market value of the firm has changed because of the effect of the changing rates on the market value of the bond.7. How does the policy of matching the maturities of assets and liabilities work (a) tominimize interest rate risk and (b) against the asset-transformation function for FIs?A policy of maturity matching will allow changes in market interest rates to have approximately the same effect on both interest income and interest expense. An increase in rates will tend to increase both income and expense, and a decrease in rates will tend to decrease both income and expense. The changes in income and expense may not be equal because of different cash flow characteristics of the assets and liabilities. The asset-transformation function of an FI involves investing short-term liabilities into long-term assets. Maturity matching clearly works against successful implementation of this process.8. Corporate bonds usually pay interest semiannually. If a company decided to change fromsemiannual to annual interest payments, how would this affect the bond’s interest rate risk?The interest rate risk would increase as the bonds are being paid back more slowly and therefore the cash flows would be exposed to interest rate changes for a longer period of time. Thus any change in interest rates would cause a larger inverse change in the value of the bonds.9. Two 10-year bonds are being considered for an investment that may have to be liquidatedbefore the maturity of the bonds. The first bond is a 10-year premium bond with a coupon rate higher than its required rate of return, and the second bond is a zero-coupon bond that pays only a lump-sum payment after 10 years with no interest over its life. Which bond would have more intere st rate risk? That is, which bond’s price would change by a larger amount for a given change in interest rates? Explain your answer.The zero-coupon bond would have more interest rate risk. Because the entire cash flow is not received until the bond matures, the entire cash flow is exposed to interest rate changes over the entire life of the bond. The cash flows of the coupon-paying bond are returned with periodic regularity, thus allowing less exposure to interest rate changes. In effect, some of the cash flows may be received before interest rates change. The effects of interest rate changes on these two types of assets will be explained in greater detail in the next section of the text.10. Consider again the two bonds in problem (9). If the investment goal is to leave the assetsuntouched until maturity, such as for a child’s education or for one’s retirement, which of the two bonds has more interest rate risk? What is the source of this risk?In this case the coupon-paying bond has more interest rate risk. The zero-coupon bond will generate exactly the expected return at the time of purchase because no interim cash flows will be realized. Thus the zero has no reinvestment risk. The coupon-paying bond faces reinvestment risk each time a coupon payment is received. The results of reinvestment will be beneficial if interest rates rise, but decreases in interest rate will cause the realized return to be less than the expected return.11. A money market mutual fund bought $1,000,000 of two-year Treasury notes six monthsago. During this time, the value of the securities has increased, but for tax reasons themutual fund wants to postpone any sale for two more months. What type of risk does the mutual fund face for the next two months?The mutual fund faces the risk of interest rates rising and the value of the securities falling.12. A bank invested $50 million in a two-year asset paying 10 percent interest per annum andsimultaneously issued a $50 million, one-year liability paying 8 percent interest per annum.What will be the bank’s net interest income each year if at the end of the first year allinterest rates have increased by 1 percent (100 basis points)?Net interest income is not affected in the first year, but NII will decrease in the second year.Year 1 Year 2Interest income $5,000,000 $5,000,000Interest expense $4,000,000 $4,500,000Net interest income $1,000,000 $500,00013. What is market risk? How do the results of this risk surface in the operating performanceof financial institutions? What actions can be taken by FI management to minimize theeffects of this risk?Market risk is the risk of price changes that affects any firm that trades assets and liabilities. The risk can surface because of changes in interest rates, exchange rates, or any other prices of financial assets that are traded rather than held on the balance sheet. Market risk can be minimized by using appropriate hedging techniques such as futures, options, and swaps, and by implementing controls that limit the amount of exposure taken by market makers.14. What is credit risk? Which types of FIs are more susceptible to this type of risk? Why?Credit risk is the possibility that promised cash flows may not occur or may only partially occur. FIs that lend money for long periods of time, whether as loans or by buying bonds, are more susceptible to this risk than those FIs that have short investment horizons. For example, life insurance companies and depository institutions generally must wait a longer time for returns to be realized than money market mutual funds and property-casualty insurance companies.15. What is the difference between firm-specific credit risk and systematic credit risk? Howcan an FI alleviate firm-specific credit risk?Firm-specific credit risk refers to the likelihood that specific individual assets may deteriorate in quality, while systematic credit risk involves macroeconomic factors that may increase the default risk of all firms in the economy. Thus, if S&P lowers its rating on IBM stock and if an investor is holding only this particular stock, she may face significant losses as a result of this downgrading. However, portfolio theory in finance has shown that firm-specific credit risk can be diversified away if a portfolio of well-diversified stocks is held. Similarly, if an FI holds well-diversified assets, the FI will face only systematic credit risk that will be affected by the general condition of the economy. The risks specific to any one customer will not be a significant portion of the FIs overall credit risk.16. Many banks and S&Ls that failed in the 1980s had made loans to oil companies inLouisiana, Texas, and Oklahoma. When oil prices fell, these companies, the regionaleconomy, and the banks and S&Ls all experienced financial problems. What types of risk were inherent in the loans that were made by these banks and S&Ls?The loans in question involved credit risk. Although the geographic risk area covered a large region of the United States, the risk more closely characterized firm-specific risk than systematic risk. More extensive diversification by the FIs to other types of industries would have decreased the amount of financial hardship these institutions had to endure.17. What is the nature of an off-balance-sheet activity? How does an FI benefit from suchactivities? Identify the various risks that these activities generate for an FI and explain how these risks can create varying degrees of financial stress for the FI at a later time.Off-balance-sheet activities are contingent commitments to undertake future on-balance-sheet investments. The usual benefit of committing to a future activity is the generation of immediate fee income without the normal recognition of the activity on the balance sheet. As such, these contingent investments may be exposed to credit risk (if there is some default risk probability), interest rate risk (if there is some price and/or interest rate sensitivity) and foreign exchange rate risk (if there is a cross currency commitment).18. What is technology risk? What is the difference between economies of scale andeconomies of scope? How can these economies create benefits for an FI? How can these economies prove harmful to an FI?Technology risk occurs when investment in new technologies does not generate the cost savings expected in the expansion in financial services. Economies of scale occur when the average cost of production decreases with an expansion in the amount of financial services provided. Economies of scope occur when an FI is able to lower overall costs by producing new products with inputs similar to those used for other products. In financial service industries, the use of data from existing customer databases to assist in providing new service products is an example of economies of scope.19. What is the difference between technology risk and operational risk? How doesinternationalizing the payments system among banks increase operational risk?Technology risk refers to the uncertainty surrounding the implementation of new technology in the operations of an FI. For example, if an FI spends millions on upgrading its computer systems but is not able to recapture its costs because its productivity has not increased commensurately or because the technology has already become obsolete, it has invested in a negative NPV investment in technology.Operational risk refers to the failure of the back-room support operations necessary to maintain the smooth functioning of the operation of FIs, including settlement, clearing, and other transaction-related activities. For example, computerized payment systems such as Fedwire, CHIPS, and SWIFT allow modern financial intermediaries to transfer funds, securities, and messages across the world in seconds of real time. This creates the opportunity to engage in global financial transactions over a short term in an extremely cost-efficient manner. However, the interdependence of such transactions also creates settlement risk. Typically, any given transaction leads to other transactions as funds and securities cross the globe. If there is either a transmittal failure or high-tech fraud affecting any one of the intermediate transactions, this could cause an unraveling of all subsequent transactions.20. What two factors provide potential benefits to FIs that expand their asset holdings andliability funding sources beyond their domestic economies?FIs can realize operational and financial benefits from direct foreign investment and foreign portfolio investments in two ways. First, the technologies and firms across various economies differ from each other in terms of growth rates, extent of development, etc. Second, exchange rate changes may not be perfectly correlated across various economies.21. What is foreign exchange risk? What does it mean for an FI to be net long in foreign assets?What does it mean for an FI to be net short in foreign assets? In each case, what musthappen to the foreign exchange rate to cause the FI to suffer losses?Foreign exchan ge risk involves the adverse affect on the value of an FI’s assets and liabilities that are located in another country when the exchange rate changes. An FI is net long in foreign assets when the foreign currency-denominated assets exceed the foreign currency denominated liabilities. In this case, an FI will suffer potential losses if the domestic currency strengthens relative to the foreign currency when repayment of the assets will occur in the foreign currency. An FI is net short in foreign assets when the foreign currency-denominated liabilities exceed the foreign currency denominated assets. In this case, an FI will suffer potential losses if the domestic currency weakens relative to the foreign currency when repayment of the liabilities will occur in the domestic currency.22. If the Swiss franc is expected to depreciate in the near future, would a U.S.-based FI inBern City prefer to be net long or net short in its asset positions? Discuss.The U.S. FI would prefer to be net short (liabilities greater than assets) in its asset position. The depreciation of the franc relative to the dollar means that the U.S. FI would pay back the net liability position with fewer dollars. In other words, the decrease in the foreign assets in dollar value after conversion will be less than the decrease in the value of the foreign liabilities in dollar value after conversion.23. If international capital markets are well integrated and operate efficiently, will banks beexposed to foreign exchange risk? What are the sources of foreign exchange risk for FIs?If there are no real or financial barriers to international capital and goods flows, FIs can eliminate all foreign exchange rate risk exposure. Sources of foreign exchange risk exposure include international differentials in real prices, cross-country differences in the real rate of interest (perhaps, as a result of differential rates of time preference), regulatory and government intervention and restrictions on capital movements, trade barriers, and tariffs.24. If an FI has the same amount of foreign assets and foreign liabilities in the same currency,has that FI necessarily reduced to zero the risk involved in these international transactions?Explain.Matching the size of the foreign currency book will not eliminate the risk of the international transactions if the maturities of the assets and liabilities are mismatched. To the extent that the asset and liabilities are mismatched in terms of maturities, or more importantly durations, the FI will be exposed to foreign interest rate risk.25. A U.S. insurance company invests $1,000,000 in a private placement of British bonds.Each bond pays £300 in interest per year for 20 years. If the current exchange rate is£1.7612/$, what is the nature of the insurance company’s exchange rate risk? Specifically, what type of exchange rate movement concerns this insurance company?In this case, the insurance company is worried about the value of the £ falling. If this happens, the insurance company would be able to buy fewer dollars with the £ received. This would happen if the exchange rate rose to say £1.88/$ since now it would take more £ to buy one dollar, but the bond contract is paying a fixed amount of interest and principal.26. Assume that a bank has assets located in London worth £150 million on which it earns anaverage of 8 percent per year. The bank has £100 million in liabilities on which it pays an average of 6 percent per year. The current spot rate is £1.50/$.a. If the exchange rate at the end of the year is £2.00/$, will the dollar have appreciated ordevalued against the mark?The dollar will have appreciated, or conversely, the £ will have depreciated.b. Given the change in the exchange rate, what is the effect in dollars on the net interestincome from the foreign assets and liabilities? Note: The net interest income is interestincome minus interest expense.Measurement in £Interest received = £12 millionInterest paid = £6 millionNet interest income = £6 millionMeasurement in $ before £ devaluationInterest received in dollars = $8 millionInterest paid in dollars = $4 millionNet interest income = $4 millionMeasurement in $ after £ devaluationInterest received in dollars = $6 millionInterest paid in dollars = $3 millionNet interest income = $3 millionc. What is the effect of the exchange rate change on the value of assets and liabilities indollars?The assets were worth $100 million (£150m/1.50) before depreciation, but afterdevaluation they are worth only $75 million. The liabilities were worth $66.67 millionbefore depreciation, but they are worth only $50 million after devaluation. Since assetsdeclined by $25 million and liabilities by $16.67 million, net worth declined by $8.33million using spot rates at the end of the year.27. Six months ago, Qualitybank, LTD., issued a $100 million, one-year maturity CDdenominated in Euros. On the same date, $60 million was invested in a €-denominated loan and $40 million was invested in a U.S. Treasury bill. The exchange rate six months ago was €1.7382/$. Assume no repayment of principal, and an exchange rate today of €1.3905/$.a. What is the current value of the Euro CD principal (in dollars and €)?Today's principal value on the Euro CD is €173.82 and $125m (173.82/1.3905).b. What is the current value of the Euro-denominated loan principal (in dollars and €)?Today's principal value on the loan is DM104.292 and $75 (104.292/1.3905).c. What is the current value of the U.S. Treasury bil l (in dollars and €)?Today's principal value on the U.S. Treasury bill is $40m and €55.62 (40 x 1.3905),although for a U.S. bank this does not change in value.d.What is Qualitybank’s profit/loss from this transaction (in dollars and €)?Qualitybank's loss is $10m or €13.908.Solution matrix for problem 27:At Issue Date:Dollar Transaction Values (in millions) Euro Transaction Values (in millions)Euro Euro Euro EuroLoan $60 CD $100 Loan DM104.292 CD DM173.82 U.S T-bill $40 U.S. T-bill DM69.528$100 $100 DM173.82 DM173.82 Today:Dollar Transaction Values (in millions) €Transaction Values (in millions)Euro Euro Euro EuroLoan $75 CD $125 Loan €104.292CD €173.82 U.S. T-bill $40 U.S. T-bill €55.620$115 $125 €159.912 €173.82 28. Suppose you purchase a 10-year, AAA-rated Swiss bond for par that is paying an annualcoupon of 8 percent. The bond has a face value of 1,000 Swiss francs (SF). The spot rate at the time of purchase is SF1.50/$. At the end of the year, the bond is downgraded to AA and the yield increases to 10 percent. In addition, the SF appreciates to SF1.35/$.a. What is the loss or gain to a Swiss investor who holds this bond for a year? What portion of this loss or gain is due to foreign exchange risk? What portion is due to interest rate risk?Beginning of the Year000,1*000,1*6010,610,6SF PV SF PVA SF Bond of Price n i n i =+=====End of the Year06.875*000,1*609,89,8SF PV SF PVA SF Bond of Price n i n i =+=====The loss to the Swiss investor (SF875.06 + SF60 - SF1,000)/$1,000 = -6.49 percent. The entire amount of the loss is due to interest rate risk.b. What is the loss or gain to a U.S. investor who holds this bond for a year? What portion of this loss or gain is due to foreign exchange risk? What portion is due to interest rate risk?Price at beginning of year = SF1,000/SF1.50 = $666.67Price at end of year = SF875.06/SF1.35 = $648.19Interest received at end of year = SF60/SF1.35 = $44.44Gain to U.S. investor = ($648.19 + $44.44 - $666.67)/$666.67 = +3.89%.The U.S. investor had an equivalent loss of 6.49 percent from interest rate risk, but he had again of 10.38 percent (3.89 - (-6.49)) from foreign exchange risk. If the Swiss franc haddepreciated, the loss to the U.S. investor would have been larger than 6.49 percent.29. What is country or sovereign risk ? What remedy does an FI realistically have in the eventof a collapsing country or currency?Country risk involves the interference of a foreign government in the transmission of funds transfer to repay a debt by a foreign borrower. A lender FI has very little recourse in this situation unless the FI is able to restructure the debt or demonstrate influence over the future supply of funds to the country in question. This influence likely would involve significant working relationships with the IMF and the World Bank.30. Characterize the risk exposure(s) of the following FI transactions by choosing one or moreof the risk types listed below:a. Interest rate risk d. Technology riskb. Credit risk e. Foreign exchange rate riskc. Off-balance-sheet risk f. Country or sovereign risk(1) A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificates of deposit. a, b(2) An insurance company invests its policy premiums in a long-term municipal bondportfolio. a, b。

Chapter TwoThe Financial Services Industry: Depository InstitutionsChapter OutlineIntroductionCommercial Banks∙Size, Structure, and Composition of the Industry∙Balance Sheet and Recent Trends∙Other Fee-Generating Activities∙Regulation∙Industry PerformanceSavings Institutions∙Savings Associations (SAs)∙Savings Banks∙Recent Performance of Savings Associations and Savings BanksCredit Unions∙Size, Structure, and Composition of the Industry and Recent Trends∙Balance Sheets∙Regulation∙Industry PerformanceGlobal Issues: Japan, China, and GermanySummaryAppendix 2A: Financial Statement Analysis Using a Return on Equity (ROE) Framework Appendix 2B: Depository Institutions and Their RegulatorsAppendix 3B: Technology in Commercial BankingSolutions for End-of-Chapter Questions and Problems: Chapter Two1.What are the differences between community banks, regional banks, and money-centerbanks? Contrast the business activities, location, and markets of each of these bank groups. Community banks typically have assets under $1 billion and serve consumer and small business customers in local markets. In 2003, 94.5 percent of the banks in the United States were classified as community banks. However, these banks held only 14.6 percent of the assets of the banking industry. In comparison with regional and money-center banks, community banks typically hold a larger percentage of assets in consumer and real estate loans and a smaller percentage of assets in commercial and industrial loans. These banks also rely more heavily on local deposits and less heavily on borrowed and international funds.Regional banks range in size from several billion dollars to several hundred billion dollars in assets. The banks normally are headquartered in larger regional cities and often have offices and branches in locations throughout large portions of the United States. Although these banks provide lending products to large corporate customers, many of the regional banks have developed sophisticated electronic and branching services to consumer and residential customers. Regional banks utilize retail deposit bases for funding, but also develop relationships with large corporate customers and international money centers.Money center banks rely heavily on nondeposit or borrowed sources of funds. Some of these banks have no retail branch systems, and most regional banks are major participants in foreign currency markets. These banks compete with the larger regional banks for large commercial loans and with international banks for international commercial loans. Most money center banks have headquarters in New York City.e the data in Table 2-4 for the banks in the two asset size groups (a) $100 million-$1billion and (b) over $10 billion to answer the following questions.a. Why have the ratios for ROA and ROE tended to increase for both groups over the1990-2003 period? Identify and discuss the primary variables that affect ROA andROE as they relate to these two size groups.The primary reason for the improvements in ROA and ROE in the late 1990s may berelated to the continued strength of the macroeconomy that allowed banks to operate with a reduced regard for bad debts, or loan charge-off problems. In addition, the continued low interest rate environment has provided relatively low-cost sources of funds, and a shifttoward growth in fee income has provided additional sources of revenue in many product lines. Finally, a growing secondary market for loans has allowed banks to control the size of the balance sheet by securitizing many assets. You will note some variance inperformance in the last three years as the effects of a softer economy were felt in thefinancial industry.b. Why is ROA for the smaller banks generally larger than ROA for the large banks?Small banks historically have benefited from a larger spread between the cost rate of funds and the earning rate on assets, each of which is caused by the less severe competition in the localized markets. In addition, small banks have been able to control credit risk moreefficiently and to operate with less overhead expense than large banks.c. Why is the ratio for ROE consistently larger for the large bank group?ROE is defined as net income divided by total equity, or ROA times the ratio of assets to equity. Because large banks typically operate with less equity per dollar of assets, netincome per dollar of equity is larger.d. Using the information on ROE decomposition in Appendix 2A, calculate the ratio ofequity-to-total-assets for each of the two bank groups for the period 1990-2003. Whyhas there been such dramatic change in the values over this time period, and why isthere a difference in the size of the ratio for the two groups?ROE = ROA x (Total Assets/Equity)Therefore, (Equity/Total Assets) = ROA/ROE$100 million - $1 Billion Over $10 BillionYear ROE ROA TA/Equity Equity/TA ROE ROA TA/Equity Equity/TA1990 9.95% 0.78% 12.76 7.84% 6.68% 0.38% 17.58 5.69%1995 13.48% 1.25% 10.78 9.27% 15.60% 1.10% 14.18 7.05%1996 13.63% 1.29% 10.57 9.46% 14.93% 1.10% 13.57 7.37%1997 14.50% 1.39% 10.43 9.59% 15.32% 1.18% 12.98 7.70%1998 13.57% 1.31% 10.36 9.65% 13.82% 1.08% 12.80 7.81%1999 14.24% 1.34% 10.63 9.41% 15.97% 1.28% 12.48 8.02%2000 13.56% 1.28% 10.59 9.44% 14.42% 1.16% 12.43 8.04%2001 12.24% 1.20% 10.20 9.80% 13.43% 1.13% 11.88 8.41%2002 12.85% 1.26% 10.20 9.81% 15.06% 1.32% 11.41 8.76%2003 12.80% 1.27% 10.08 9.92% 16.32% 1.42% 11.49 8.70% The growth in the equity to total assets ratio has occurred primarily because of theincreased profitability of the entire banking industry and the encouragement of theregulators to increase the amount of equity financing in the banks. Increased fee income, reduced loan loss reserves, and a low, stable interest rate environment have produced the increased profitability which in turn has allowed banks to increase equity through retained earnings.Smaller banks tend to have a higher equity ratio because they have more limited assetgrowth opportunities, generally have less diverse sources of funds, and historically have had greater profitability than larger banks.3.What factors have caused the decrease in loan volume relative to other assets on thebalance sheets of commercial banks? How has each of these factors been related to the change and development of the financial services industry during the 1990s and early2000s? What strategic changes have banks implemented to deal with changes in thefinancial services environment?Corporations have utilized the commercial paper markets with increased frequency rather than borrow from banks. In addition, many banks have sold loan packages directly into the capital markets (securitization) as a method to reduce balance sheet risks and to improve liquidity. Finally, the decrease in loan volume during the early 1990s and early 2000s was due in part to the recession in the economy.As deregulation of the financial services industry continued during the 1990s, the position of banks as the primary financial services provider continued to erode. Banks of all sizes have increased the use of off-balance sheet activities in an effort to generate additional fee income. Letters of credit, futures, options, swaps and other derivative products are not reflected on the balance sheet, but do provide fee income for the banks.4.What are the major uses of funds for commercial banks in the United States? What are theprimary risks to the bank caused by each use of funds? Which of the risks is most critical to the continuing operation of the bank?Loans and investment securities continue to be the primary assets of the banking industry. Commercial loans are relatively more important for the larger banks, while consumer, small business loans, and residential mortgages are more important for small banks. Each of these types of loans creates credit, and to varying extents, liquidity risks for the banks. The security portfolio normally is a source of liquidity and interest rate risk, especially with the increased use of various types of mortgage backed securities and structured notes. In certain environments, each of these risks can create operational and performance problems for a bank.5.What are the major sources of funds for commercial banks in the United States? How isthe landscape for these funds changing and why?The primary sources of funds are deposits and borrowed funds. Small banks rely more heavily on transaction, savings, and retail time deposits, while large banks tend to utilize large, negotiable time deposits and nondeposit liabilities such as federal funds and repurchase agreements. The supply of nontransaction deposits is shrinking, because of the increased use by small savers of higher-yielding money market mutual funds,6. What are the three major segments of deposit funding? How are these segments changingover time? Why? What strategic impact do these changes have on the profitable operation of a bank?Transaction accounts include deposits that do not pay interest and NOW accounts that pay interest. Retail savings accounts include passbook savings accounts and small, nonnegotiable time deposits. Large time deposits include negotiable certificates of deposits that can be resold in the secondary market. The importance of transaction and retail accounts is shrinking due to the direct investment in money market assets by individual investors. The changes in the deposit markets coincide with the efforts to constrain the growth on the asset side of the balance sheet.7. How does the liability maturity structure of a bank’s balance sheet compare with thematurity structure of the asset portfolio? What risks are created or intensified by thesedifferences?Deposit and nondeposit liabilities tend to have shorter maturities than assets such as loans. The maturity mismatch creates varying degrees of interest rate risk and liquidity risk.8. The following balance sheet accounts have been taken from the annual report for a U.S.bank. Arrange the accounts in balance sheet order and determine the value of total assets.Based on the balance sheet structure, would you classify this bank as a community bank, regional bank, or a money center bank?Assets Liabilities and EquityCash $ 2,660 Demand deposits $ 5,939Fed funds sold $ 110 NOW accounts $12,816Investment securities $ 5,334 Savings deposits $ 3,292Net loans $29,981 Certificates of deposit $ 9,853Intangible assets $ 758 Other time deposits $ 2,333Other assets $ 1,633 Short-term Borrowing $ 2,080Premises $ 1,078 Other liabilities $ 778Total assets $41,554 Long-term debt $ 1,191Equity $ 3,272Total liab. and equity $41,554This bank has funded the assets primarily with transaction and savings deposits. The certificates of deposit could be either retail or corporate (negotiable). The bank has very little ( 5 percent) borrowed funds. On the asset side, about 72 percent of total assets is in the loan portfolio, but there is no information about the type of loans. The bank actually is a small regional bank with $41.5 billion in assets, but the asset structure could easily be a community bank with $41.5 million in assets.9.What types of activities normally are classified as off-balance-sheet (OBS) activities?Off-balance-sheet activities include the issuance of guarantees that may be called into play at a future time, and the commitment to lend at a future time if the borrower desires.a. How does an OBS activity move onto the balance sheet as an asset or liability?The activity becomes an asset or a liability upon the occurrence of a contingent event,which may not be in the control of the bank. In most cases the other party involved with the original agreement will call upon the bank to honor its original commitment.b.What are the benefits of OBS activities to a bank?The initial benefit is the fee that the bank charges when making the commitment. If the bank is required to honor the commitment, the normal interest rate structure will apply to the commitment as it moves onto the balance sheet. Since the initial commitment does notappear on the balance sheet, the bank avoids the need to fund the asset with either deposits or equity. Thus the bank avoids possible additional reserve requirement balances anddeposit insurance premiums while improving the earnings stream of the bank.c.What are the risks of OBS activities to a bank?The primary risk to OBS activities on the asset side of the bank involves the credit risk of the borrower. In many cases the borrower will not utilize the commitment of the bank until the borrower faces a financial problem that may alter the credit worthiness of the borrower.Moving the OBS activity to the balance sheet may have an additional impact on the interest rate and foreign exchange risk of the bank.e the data in Table 2-6 to answer the following questions.a.What was the average annual growth rate in OBS total commitments over the periodfrom 1992-2003?$78,035.6 = $10,200.3(1+g)11 g = 20.32 percentb.Which categories of contingencies have had the highest annual growth rates?Category of Contingency or Commitment Growth RateCommitments to lend 14.04%Future and forward contracts 15.13%Notional amount of credit derivatives 52.57%Standby contracts and other option contracts 56.39%Commitments to buy FX, spot, and forward 3.39%Standby LCs and foreign office guarantees 7.19%Commercial LCs -1.35%Participations in acceptances -6.11%Securities borrowed 20.74%Notional value of all outstanding swaps 31.76%Standby contracts and other option contracts have grown at the fastest rate of 56.39 percent, and they have an outstanding balance of $214,605.3 billion. The rate of growth in thecredit derivatives area has been the second strongest at 52.57 percent, the dollar volumeremains fairly low at $1,001.2 billion at year-end 2003. Interest rate swaps grew at anannual rate of 31.76 percent with a change in dollar value of $41,960.7 billion. Clearly the strongest growth involves derivative areas.c.What factors are credited for the significant growth in derivative securities activities bybanks?The primary use of derivative products has been in the areas of interest rate, credit, andforeign exchange risk management. As banks and other financial institutions have pursuedthe use of these instruments, the international financial markets have responded byextending the variations of the products available to the institutions.11. For each of the following banking organizations, identify which regulatory agencies (OCC,FRB, FDIC, or state banking commission) may have some regulatory supervisionresponsibility.(a) State-chartered, nonmember, nonholding-company bank.(b)State-chartered, nonmember holding-company bank(c) State-chartered member bank(d)Nationally chartered nonholding-company bank.(e)Nationally chartered holding-company bankBank Type OCC FRB FDIC SBCom.(a) Yes Yes(b) Yes Yes Yes(c) Yes Yes Yes(d) Yes Yes Yes(e) Yes Yes Yes12. What factors normally are given credit for the revitalization of the banking industry duringthe decade of the 1990s? How is Internet banking expected to provide benefits in thefuture?The most prominent reason was the lengthy economic expansion in both the U.S. and many global economies during the entire decade of the 1990s. This expansion was assisted in the U.S. by low and falling interest rates during the entire period.The extent of the impact of Internet banking remains unknown. However, the existence of this technology is allowing banks to open markets and develop products that did not exist prior to the Internet. Initial efforts have focused on retail customers more than corporate customers. The trend should continue with the advent of faster, more customer friendly products and services, and the continued technology education of customers.13. What factors are given credit for the strong performance of commercial banks in the early2000s?The lowest interest rates in many decades helped bank performance on both sides of the balance sheet. On the asset side, many consumers continued to refinance homes and purchase new homes, an activity that caused fee income from mortgage lending to increase and remain strong. Meanwhile, the rates banks paid on deposits shrunk to all-time lows. In addition, the development and more comfortable use of new financial instruments such as credit derivatives and mortgage backed securities helped banks ease credit risk off the balance sheets. Finally, information technology has helped banks manage their risk more efficiently.14. What are the main features of the Riegle-Neal Interstate Banking and Branching EfficiencyAct of 1994? What major impact on commercial banking activity is expected from this legislation?The main feature of the Riegle-Neal Act of 1994 was the removal of barriers to inter-state banking. In September 1995 bank holding companies were allowed to acquire banks in other states. In 1997, banks were allowed to convert out-of-state subsidiaries into branches of a single interstate bank. As a result, consolidations and acquisitions have allowed for the emergence of very large banks with branches across the country.15. What happened in 1979 to cause the failure of many savings associations during the early1980s? What was the effect of this change on the operating statements of savingsassociations?The Federal Reserve changed its reserve management policy to combat the effects of inflation, a change which caused the interest rates on short-term deposits to increase dramatically more than the rates on long-term mortgages. As a result, the marginal cost of funds exceeded the average yield on assets that caused a negative interest spread for the savings associations. Further, because savings associations were constrained by Regulation Q on the amount of interest which could be paid on deposits, they suffered disintermediation, or deposit withdrawals, which led to severe liquidity pressures on the balance sheets.16. How did the two pieces of regulatory legislation, the DIDMCA in 1980 and the DIA in1982, change the operating profitability of savings associations in the early 1980s? What impact did these pieces of legislation ultimately have on the risk posture of the savingsassociation industry? How did the FSLIC react to this change in operating performance and risk?The two pieces of legislation allowed savings associations to offer new deposit accounts, such as NOW accounts and money market deposit accounts, in an effort to reduce the net withdrawal flow of deposits from the institutions. In effect this action was an attempt to reduce the liquidity problem. In addition, the savings associations were allowed to offer adjustable-rate mortgages and a limited amount of commercial and consumer loans in an attempt to improve the profitability performance of the industry. Although many savings associations were safer, more diversified, and more profitable, the FSLIC did not foreclose many of the savings associations which were insolvent. Nor did the FSLIC change its policy of assessing higher insurance premiums on companies that remained in high risk categories. Thus many savings associations failed, which caused the FSLIC to eventually become insolvent.17. How do the asset and liability structures of a savings association compare with the assetand liability structures of a commercial bank? How do these structural differences affect the risks and operating performance of a savings association? What is the QTL test?The savings association industry relies on mortgage loans and mortgage-backed securities as the primary assets, while the commercial banking industry has a variety of loan products, including mortgage products. The large amount of longer-term fixed rate assets continues to cause interestrate risk, while the lack of asset diversity exposes the savings association to credit risk. Savings associations hold considerably less cash and U.S. Treasury securities than do commercial banks. On the liability side, small time and saving deposits remain as the predominant source of funds for savings associations, with some reliance on FHLB borrowing. The inability to nurture relationships with the capital markets also creates potential liquidity risk for the savings association industry.The acronym QTL stands for Qualified Thrift Lender. The QTL test refers to a minimum amount of mortgage-related assets that a savings association must hold. The amount currently is 65 percent of total assets.18. How do savings banks differ from savings and loan associations? Differentiate in terms ofrisk, operating performance, balance sheet structure, and regulatory responsibility.The asset structure of savings banks is similar to the asset structure of savings associations with the exception that savings banks are allowed to diversify by holding a larger proportion of corporate stocks and bonds. Savings banks rely more heavily on deposits and thus have a lower level of borrowed funds. The banks are regulated at both the state and federal level, with deposits insured by t he FDIC’s BIF.19. How did the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of1989 and the Federal Deposit Insurance Corporation Improvement Act of 1991 reversesome of the key features of earlier legislation?FIRREA rescinded some of the expanded thrift lending powers of the DIDMCA of 1980 and the Garn-St Germain Act of 1982 by instituting the qualified thrift lender (QTL) test that requires that all thrifts must hold portfolios that are comprised primarily of mortgages or mortgage products such as mortgage-backed securities. The act also required thrifts to divest their portfolios of junk bonds by 1994, and it replaced the FSLIC with a new thrift deposit insurance fund, the Savings Association Insurance Fund, which was managed by the FDIC.The FDICA of 1991 amended the DIDMCA of 1980 by introducing risk-based deposit insurance premiums in 1993 to reduce excess risk-taking. FDICA also provided for the implementation of a policy of prompt corrective actions (PCA) that allows regulators to close banks more quickly in cases where insolvency is imminent. Thus the ill-advised policy of regulatory forbearance should be curbed. Finally, the act amended the International Banking Act of 1978 by expanding the regulatory oversight powers over foreign banks.20. What is the “common bond” membership qualification under which credit unions havebeen formed and operated? How does this qualification affect the operational objective ofa credit union?The common bond policy allows any one who meets a specific membership requirement to become a member of the credit union. The requirement normally is tied to a place of employment. Because the common bond policy has been loosely interpreted, implementation has allowed credit union membership and assets to grow at a rate that exceeds similar growth inthe commercial banking industry. Since credit unions are mutual organizations where the members are owners, employees essentially use saving deposits to make loans to other employees who need funds.21. What are the operating advantages of credit unions that have caused concern bycommercial bankers? What has been the response of the Credit Union NationalAssociation to the bank criticisms?Credit unions are tax-exempt organizations that often are provided office space by employers at no cost. As a result, because non-interest operating costs are very low, credit unions can lend money at lower rates and pay higher rates on savings deposits than can commercial banks. CUNA has responded that the cost to tax payers from the tax-exempt status is replaced by the additional social good created by the benefits to the members.22. How does the asset structure of credit unions compare with the asset structure ofcommercial banks and savings and loan associations? Refer to Tables 2-5, 2-9, and 2-12 to formulate your answer.The relative proportions of credit union assets are more similar to commercial banks than savings associations, with 20 percent in investment securities and 63 percent in loans. However, nonmortgage loans of credit unions are predominantly consumer loans. On the liability side of the balance sheet, credit unions differ from banks in that they have less reliance on large time deposits, and they differ from savings associations in that they have virtually no borrowings from any source. The primary sources of funds for credit unions are transaction and small time and savings accounts.23. Compare and contrast the performance of the U.S. depository institution industry withthose of Japan, China, and Germany.The entire Japanese financial system was under increasing pressure from the early 1990s as the economy suffered from real estate and other commercial industry pressures. The Japanese government has used several financial aid packages in attempts to avert a collapse of the Japanese financial system. Most attempts have not been successful.The deterioration in the banking industry in China in the early 2000s was caused by nonperforming loans and credits. The remedies include the opportunity for more foreign bank ownership in the Chinese banking environment primarily via larger ownership positions, less restrictive capital requirements for branches, and increased geographic presence.German banks also had difficulties in the early 2000s, but the problems were not universal. The large banks suffered from credit problems, but the small banks enjoyed high credit ratings and low cast of funds because of government guarantees on their borrowing. Thus while small banks benefited from growth in small business lending, the large banks became reliant on fee and trading income.。

第8章利率风险I 课后习题答案（1-10）自己边做题边翻译的，仅供参考….1.利率波动程度比1979-1982年采用非借入准备金制度时显著降低。

2. 金融市场一体化加速了利率的变化，以及各个国家利率波动之间的传递；与过去相比，利率水平更难控制，不确定性也更大；另外，由于金融机构越来越全球化，任何利率水平的波动都会更迅速地引起公司额外的利率风险问题。

3. 再定价缺口指在一定时期内，需要再定价的资产价值和负债价值之间的差额，再定价即意味着面临一个新的利率。

利率敏感性意味着金融机构的管理者在改变每项资产或负债所公布的利率之前需等待的时间。

再定价模型关注净利息收入变量的潜在变化。

事实上，当利率变化时，资产和负债将被重新定价，利息收入和利息支出都将发生改变，这就是所谓的“面临一个新的利率”。

4. 期限等级是指衡量资产和负债的时间期，投资组合中的证券是否有利率敏感性取决于其再定价期限时间的长短。

再定价期限越长，到期或需要重新定价的证券就越多，利率风险就越大。

5. a.（1）再定价缺口= RSA - RSL = $200 - $100 million = +$100 million.净利息收入= ($100 million)(.01) = +$1.0 million, 或$1,000,000.（2）再定价缺口= RSA - RSL = $100 - $150 million = -$50 million.净利息收入= (-$50 million)(.01) = -$0.5 million, 或-$500,000.（3）再定价缺口= RSA - RSL = $150 - $140 million = +$10 million.净利息收入= ($10 million)(.01) = +$0.1 million, 或$100,000.b. （1）和（3）的情况下的金融机构在利率下降时面临风险（正的再定价缺口），（2）情况下的金融机构在利率上升时面临风险（负的再定价缺口）。

朱新蓉《货币⾦融学》课后习题-⾦融管理机构（圣才出品）第⼋章⾦融管理机构⼀、思考题1．中央银⾏基本职能有哪些？答：中央银⾏的职能是中央银⾏性质的具体体现。

按中央银⾏性质划分，中央银⾏的三⼤基本职能是：发⾏的银⾏、银⾏的银⾏、政府的银⾏。

（1）发⾏的银⾏中央银⾏是发⾏的银⾏，是指中央银⾏垄断货币发⾏权，是⼀国或某⼀货币联盟唯⼀授权的货币发⾏机构。

（2）银⾏的银⾏银⾏的银⾏职能是指中央银⾏充当商业银⾏和其他⾦融机构的最后贷款⼈。

银⾏的银⾏这⼀职能体现了中央银⾏是特殊⾦融机构的性质，是中央银⾏作为⾦融体系核⼼的基本条件。

中央银⾏作为银⾏的银⾏需履⾏的职责如下：①集中商业银⾏的存款准备⾦；②充当银⾏业的最后贷款⼈；③创建全国银⾏间清算业务平台；④外汇头⼨调节。

（3）政府的银⾏政府的银⾏职能是指中央银⾏为政府提供服务，是政府管理国家⾦融的专门机构。

具体体现在：①代理国库；②代理政府债券发⾏；③为政府融通资⾦；④为国家持有和经营管理国际储备；⑤代表政府参加国际⾦融活动；⑥为政府提供经济⾦融情报和决策建议。

2．为什么要进⾏⾦融监管的国际合作？答：⾦融国际化及相应的⾦融风险国际化，使得各国的监管部门对⾦融活动和机构的监旨必须加强协调和合作，否则，⽆论是对个别国家还是对整个国际⾦融市场都有可能带来消极的影响。

加强国际⾦融监管合作的必要性主要表现在以下⼏个⽅⾯：（1）国际⾦融服务业经营风险增⼤，⾦融国际化在客观上要求加强对国际⾦融市场的监管。

（2）在⾦融活动和⾦融机构的国际化与⾦融监管的国别化之间，⽭盾⽇益加深。

（3）国际⾦融业务的创新不断突破现有的⾦融监管框架，⼀⽅⾯促进了国际⾦融市场整体效率的提⾼，产⽣了积极的经济效益；另⼀⽅⾯也给国际⾦融体系的安全稳定带来⼀系列的问题，使国际⾦融市场不稳定性增加，造成国际⾦融市场动荡加剧。

⼆、练习题1．中央银⾏的业务内容有哪些？答：中央银⾏发挥其职能要通过资产、负债与清算业务的操作来实现。

金融机构试题及答案一、单选题（每题2分，共10分）1. 以下哪个选项不是金融机构的类型？A. 商业银行B. 证券公司C. 保险公司D. 房地产开发公司答案：D2. 金融机构的主要功能是：A. 投资B. 融资C. 储蓄D. 以上都是答案：D3. 以下哪个不是商业银行的主要业务？A. 存款业务B. 贷款业务C. 保险业务D. 汇兑业务答案：C4. 金融机构在金融市场中扮演的角色是：A. 投资者B. 融资者C. 监管者D. 以上都是答案：D5. 以下哪个不是金融机构的风险管理工具？A. 资产负债管理B. 信用风险评估C. 利率风险管理D. 市场营销策略答案：D二、多选题（每题3分，共15分）1. 金融机构的监管机构可能包括：A. 中央银行B. 证券交易委员会C. 保险监管机构D. 税务部门答案：A B C2. 以下哪些是金融机构的融资工具？A. 股票B. 债券C. 银行贷款D. 租赁答案：A B C3. 金融机构的风险管理包括：A. 信用风险管理B. 市场风险管理C. 操作风险管理D. 法律风险管理答案：A B C D4. 金融机构的资本充足率是指：A. 核心资本与风险加权资产的比例B. 总资本与风险加权资产的比例C. 核心资本与总资产的比例D. 总资本与总资产的比例答案：A B5. 以下哪些是金融机构的负债？A. 存款B. 债券发行C. 股权融资D. 贷款答案：A B三、判断题（每题1分，共5分）1. 所有金融机构都受到政府的严格监管。

（对）2. 金融机构只能通过存款来筹集资金。

（错）3. 金融机构的业务活动不涉及风险。

（错）4. 银行是金融机构的一种。

（对）5. 金融机构的资本充足率越高，其风险管理能力越强。

（对）四、简答题（每题5分，共10分）1. 简述金融机构在经济发展中的作用。

答案：金融机构在经济发展中的作用包括提供资金的中介服务，促进储蓄向投资的转化，分散和转移风险，提供支付结算服务，以及通过信贷政策影响经济活动等。

金融机构考试题及答案一、单选题（每题2分，共10题）1. 以下哪项不是金融机构的主要功能？A. 支付结算B. 风险管理C. 资金筹集D. 产品制造答案：D2. 商业银行的主要业务不包括以下哪项？A. 存款业务B. 贷款业务C. 证券经纪D. 汇兑业务答案：C3. 以下哪个不是中央银行的职能？A. 发行货币B. 制定货币政策C. 监管金融机构D. 个人理财服务答案：D4. 金融市场的基本功能不包括以下哪项？A. 资金融通B. 风险分散C. 价格发现D. 商品交换答案：D5. 以下哪项不是金融监管的目的？A. 维护金融稳定B. 保护消费者权益C. 促进金融创新D. 限制金融自由答案：D二、多选题（每题3分，共5题）6. 金融机构的类型包括哪些？A. 商业银行B. 保险公司C. 证券公司D. 投资基金答案：ABCD7. 以下哪些属于金融衍生品？A. 期货B. 期权C. 债券D. 掉期答案：ABD8. 以下哪些是中央银行的货币政策工具？A. 利率政策B. 公开市场操作C. 存款准备金率D. 外汇管制答案：ABC9. 金融市场的参与者包括哪些？A. 个人投资者B. 金融机构C. 政府机构D. 非金融企业答案：ABCD10. 金融风险管理的方法包括哪些？A. 风险分散B. 风险转移C. 风险对冲D. 风险补偿答案：ABCD三、判断题（每题1分，共5题）11. 银行的资本充足率越高，其抵御风险的能力越强。

（对）12. 利率市场化是指利率完全由市场供求决定，不受任何干预。

（错）13. 金融监管的目的是限制金融市场的发展。

（错）14. 金融衍生品可以用于投机，也可以用于对冲风险。

（对）15. 存款保险制度可以完全消除银行挤兑现象。

（错）四、简答题（每题5分，共2题）16. 简述金融市场的分类。

金融市场可以根据交易的金融工具类型、交易的期限、交易的地域范围等进行分类。

根据交易工具类型，可以分为货币市场和资本市场；根据交易期限，可以分为短期金融市场和长期金融市场；根据交易地域范围，可以分为国内金融市场和国际金融市场。

Chapter OneWhy Are Financial Intermediaries Special?Chapter OutlineIntroductionFinancial Intermediaries’ Specialness•Information Costs•Liquidity and Price Risk•Other Special ServicesOther Aspects of Specialness•The Transmission of Monetary Policy•Credit Allocation•Intergenerational Wealth Transfers or Time Intermediation•Payment Services•Denomination IntermediationSpecialness and Regulation•Safety and Soundness Regulation•Monetary Policy Regulation•Credit Allocation Regulation•Consumer Protection Regulation•Investor Protection Regulation•Entry RegulationThe Changing Dynamics of Specialness•Trends in the United States•Future Trends•Global IssuesSummarySolutions for End-of-Chapter Questions and Problems: Chapter One1. Identify and briefly explain the five risks common to financialinstitutions.Default or credit risk of assets, interest rate risk caused by maturity mismatches between assets and liabilities, liability withdrawal or liquidity risk, underwriting risk, and operating cost risks.2. Explain how economic transactions between household savers of funds and corporate users of funds would occur in a world without financial intermediaries (FIs).In a world without FIs the users of corporate funds in the economy would have to approach directly the household savers of funds in order to satisfy their borrowing needs. This process would be extremely costly because of the up-front information costs faced by potential lenders. Cost inefficiencies would arise with the identification of potential borrowers, the pooling of small savings into loans of sufficient size to finance corporate activities, and the assessment of risk and investment opportunities. Moreover, lenders would have to monitor the activities of borrowers over each loan's life span. The net result would be an imperfect allocation of resources in an economy.3. Identify and explain three economic disincentives that probably woulddampen the flow of funds between household savers of funds and corporate users of funds in an economic world without financial intermediaries.Investors generally are averse to purchasing securities directly because of (a) monitoring costs, (b) liquidity costs, and (c) price risk. Monitoring the activities of borrowers requires extensive time, expense, and expertise. As a result, households would prefer to leave this activity to others, and by definition, the resulting lack of monitoring would increase the riskiness of investing in corporate debt and equity markets. The long-term nature of corporate equity and debt would likely eliminate at least a portion of those households willing to lend money, as the preference of many for near-cash liquidity would dominate the extra returns which may be available. Third, the price risk of transactions on the secondary markets would increase without the information flows and services generated by high volume.4. Identify and explain the two functions in which FIs may specialize thatenable the smooth flow of funds from household savers to corporate users.FIs serve as conduits between users and savers of funds by providing a brokerage function and by engaging in the asset transformation function. The brokerage function can benefit both savers and users of funds and can vary according to the firm. FIs may provide only transaction services, such as discount brokerages, or they also may offer advisory services which helpreduce information costs, such as full-line firms like Merrill Lynch. The asset transformation function is accomplished by issuing their own securities, such as deposits and insurance policies that are more attractive to household savers, and using the proceeds to purchase the primary securities of corporations. Thus, FIs take on the costs associated with the purchase of securities.5. In what sense are the financial claims of FIs considered secondarysecurities, while the financial claims of commercial corporations areconsidered primary securities? How does the transformation process, or intermediation, reduce the risk, or economic disincentives, to the savers?The funds raised by the financial claims issued by commercial corporations are used to invest in real assets. These financial claims, which are considered primary securities, are purchased by FIs whose financial claims therefore are considered secondary securities. Savers who invest in the financial claims of FIs are indirectly investing in the primary securities of commercial corporations. However, the information gathering and evaluation expenses, monitoring expenses, liquidity costs, and price risk of placing theinvestments directly with the commercial corporation are reduced because ofthe efficiencies of the FI.6. Explain how financial institutions act as delegated monitors. Whatsecondary benefits often accrue to the entire financial system because of this monitoring process?By putting excess funds into financial institutions, individual investors give to the FIs the responsibility of deciding who should receive the money and of ensuring that the money is utilized properly by the borrower. In this sense the depositors have delegated the FI to act as a monitor on their behalf. The FI can collect information more efficiently than individual investors. Further, the FI can utilize this information to create new products, such as commercial loans, that continually update the information pool. This more frequent monitoring process sends important informational signals to other participants in the market, a process that reduces information imperfection and asymmetry between the ultimate sources and users of funds in the economy.7. What are five general areas of FI specialness that are caused byproviding various services to sectors of the economy?First, FIs collect and process information more efficiently than individual savers. Second, FIs provide secondary claims to household savers which often have better liquidity characteristics than primary securities such as equities and bonds. Third, by diversifying the asset base FIs provide secondary securities with lower price-risk conditions than primary securities. Fourth, FIs provide economies of scale in transaction costs because assets are purchased in larger amounts. Finally, FIs provide maturity intermediation to the economy which allows the introduction of additional types of investment contracts, such as mortgage loans, that are financed with short-term deposits.8. How do FIs solve the information and related agency costs when householdsavers invest directly in securities issued by corporations? What areagency costs?Agency costs occur when owners or managers take actions that are not in the best interests of the equity investor or lender. These costs typically result from the failure to adequately monitor the activities of the borrower. If no other lender performs these tasks, the lender is subject to agency costs as the firm may not satisfy the covenants in the lending agreement. Because the FI invests the funds of many small savers, the FI has a greater incentive to collect information and monitor the activities of the borrower.9. What often is the benefit to the lenders, borrowers, and financialmarkets in general of the solution to the information problem provided by the large financial institutions?One benefit to the solution process is the development of new secondary securities that allow even further improvements in the monitoring process. An example is the bank loan that is renewed more quickly than long-term debt. The renewal process updates the financial and operating information of thefirm more frequently, thereby reducing the need for restrictive bond covenants that may be difficult and costly to implement.10. How do FIs alleviate the problem of liquidity risk faced by investors whowish to invest in the securities of corporations?Liquidity risk occurs when savers are not able to sell their securities on demand. Commercial banks, for example, offer deposits that can be withdrawn at any time. Yet the banks make long-term loans or invest in illiquid assetsbecause they are able to diversify their portfolios and better monitor the performance of firms that have borrowed or issued securities. Thus individual investors are able to realize the benefits of investing in primary assets without accepting the liquidity risk of direct investment.11. How do financial institutions help individual savers diversify theirportfolio risks? Which type of financial institution is best able toachieve this goal?Money placed in any financial institution will result in a claim on a more diversified portfolio. Banks lend money to many different types of corporate, consumer, and government customers, and insurance companies have investmentsin many different types of assets. Investment in a mutual fund may generate the greatest diversification benefit because of the fund’s investment in a wide array of stocks and fixed income securities.12. How can financial institutions invest in high-risk assets with fundingprovided by low-risk liabilities from savers?Diversification of risk occurs with investments in assets that are not perfectly positively correlated. One result of extensive diversification is that the average risk of the asset base of an FI will be less than the average risk of the individual assets in which it has invested. Thus individual investors realize some of the returns of high-risk assets without accepting the corresponding risk characteristics.13. How can individual savers use financial institutions to reduce thetransaction costs of investing in financial assets?By pooling the assets of many small investors, FIs can gain economies of scale in transaction costs. This benefit occurs whether the FI is lending to a corporate or retail customer, or purchasing assets in the money and capital markets. In either case, operating activities that are designed to deal in large volumes typically are more efficient than those activities designed for small volumes.14. What is maturity intermediation? What are some of the ways in which therisks of maturity intermediation are managed by financial intermediaries?If net borrowers and net lenders have different optimal time horizons, FIscan service both sectors by matching their asset and liability maturities through on- and off-balance sheet hedging activities and flexible access to the financial markets. For example, the FI can offer the relatively short-term liabilities desired by households and also satisfy the demand for long-term loans such as home mortgages. By investing in a portfolio of long-and short-term assets that have variable- and fixed-rate components, the FI canreduce maturity risk exposure by utilizing liabilities that have similar variable- and fixed-rate characteristics, or by using futures, options, swaps, and other derivative products.15. What are five areas of institution-specific FI specialness, and whichtypes of institutions are most likely to be the service providers?First, commercial banks and other depository institutions are key players for the transmission of monetary policy from the central bank to the rest of the economy. Second, specific FIs often are identified as the major source of finance for certain sectors of the economy. For example, S&Ls and savings banks traditionally serve the credit needs of the residential real estate market. Third, life insurance and pension funds commonly are encouraged to provide mechanisms to transfer wealth across generations. Fourth, depository institutions efficiently provide payment services to benefit the economy. Finally, mutual funds provide denomination intermediation by allowing small investors to purchase pieces of assets with large minimum sizes such as negotiable CDs and commercial paper issues.16. How do depository institutions such as commercial banks assist in theimplementation and transmission of monetary policy?The Federal Reserve Board can involve directly the commercial banks in the implementation of monetary policy through changes in the reserve requirements and the discount rate. The open market sale and purchase of Treasurysecurities by the Fed involves the banks in the implementation of monetary policy in a less direct manner.17. What is meant by credit allocation regulation? What social benefit isthis type of regulation intended to provide?Credit allocation regulation refers to the requirement faced by FIs to lend to certain sectors of the economy, which are considered to be socially important. These may include housing and farming. Presumably the provision of credit to make houses more affordable or farms more viable leads to a more stable and productive society.18. Which intermediaries best fulfill the intergenerational wealth transferfunction? What is this wealth transfer process?Life insurance and pension funds often receive special taxation relief and other subsidies to assist in the transfer of wealth from one generation to another. In effect, the wealth transfer process allows the accumulation of wealth by one generation to be transferred directly to one or more younger generations by establishing life insurance policies and trust provisions in pension plans. Often this wealth transfer process avoids the full marginal tax treatment that a direct payment would incur.19. What are two of the most important payment services provided by financialinstitutions? To what extent do these services efficiently providebenefits to the economy?The two most important payment services are check clearing and wire transfer services. Any breakdown in these systems would produce gridlock in the payment system with resulting harmful effects to the economy at both the domestic and potentially the international level.20. What is denomination intermediation? How do FIs assist in this process?Denomination intermediation is the process whereby small investors are able to purchase pieces of assets that normally are sold only in large denominations. Individual savers often invest small amounts in mutual funds. The mutual funds pool these small amounts and purchase negotiable CDs which can only be sold in minimum increments of $100,000, but which often are sold in million dollar packages. Similarly, commercial paper often is sold only in minimum amounts of $250,000. Therefore small investors can benefit in the returns and low risk which these assets typically offer.21. What is negative externality? In what ways do the existence of negativeexternalities justify the extra regulatory attention received byfinancial institutions?A negative externality refers to the action by one party that has an adverse affect on some third party who is not part of the original transaction. For example, in an industrial setting, smoke from a factory that lowers surrounding property values may be viewed as a negative externality. For financial institutions, one concern is the contagion effect that can arise when the failure of one FI can cast doubt on the solvency of otherinstitutions in that industry.22. If financial markets operated perfectly and costlessly, would there be aneed for financial intermediaries?To a certain extent, financial intermediation exists because of financial market imperfections. If information is available costlessly to all participants, savers would not need intermediaries to act as either their brokers or their delegated monitors. However, if there are social benefits to intermediation, such as the transmission of monetary policy or credit allocation, then FIs would exist even in the absence of financial market imperfections.23. What is mortgage redlining?Mortgage redlining occurs when a lender specifically defines a geographic area in which it refuses to make any loans. The term arose because of the area often was outlined on a map with a red pencil.24. Why are FIs among the most regulated sectors in the world? When is netregulatory burden positive?FIs are required to enhance the efficient operation of the economy. Successful financial intermediaries provide sources of financing that fund economic growth opportunity that ultimately raises the overall level of economic activity. Moreover, successful financial intermediaries provide transaction services to the economy that facilitate trade and wealth accumulation.Conversely, distressed FIs create negative externalities for the entire economy. That is, the adverse impact of an FI failure is greater than just the loss to shareholders and other private claimants on the FI's assets. For example, the local market suffers if an FI fails and other FIs also may be thrown into financial distress by a contagion effect. Therefore, since some of the costs of the failure of an FI are generally borne by society at large, the government intervenes in the management of these institutions to protect society's interests. This intervention takes the form of regulation.However, the need for regulation to minimize social costs may impose private costs to the firms that would not exist without regulation. This additional private cost is defined as a net regulatory burden. Examples include the cost of holding excess capital and/or excess reserves and the extra costs of providing information. Although they may be socially beneficial, these costsadd to private operating costs. To the extent that these additional costs help to avoid negative externalities and to ensure the smooth and efficient operation of the economy, the net regulatory burden is positive.25. What forms of protection and regulation do regulators of FIs impose toensure their safety and soundness?Regulators have issued several guidelines to insure the safety and soundness of FIs:a. FIs are required to diversify their assets. For example, banks cannotlend more than 10 percent of their equity to a single borrower.b. FIs are required to maintain minimum amounts of capital to cushion anyunexpected losses. In the case of banks, the Basle standards require aminimum core and supplementary capital of 8 percent of their risk-adjusted assets.c. Regulators have set up guaranty funds such as BIF for commercial banks,SIPC for securities firms, and state guaranty funds for insurance firms to protect individual investors.d. Regulators also engage in periodic monitoring and surveillance, such ason-site examinations, and request periodic information from the FIs.26. In the transmission of monetary policy, what is the difference betweeninside money and outside money? How does the Federal Reserve Board try to control the amount of inside money? How can this regulatory position create a cost for the depository financial institutions?Outside money is that part of the money supply directly produced andcontrolled by the Fed, for example, coins and currency. Inside money refers to bank deposits not directly controlled by the Fed. The Fed can influence this amount of money by reserve requirement and discount rate policies. In cases where the level of required reserves exceeds the level considered optimal by the FI, the inability to use the excess reserves to generate revenue may be considered a tax or cost of providing intermediation.27. What are some examples of credit allocation regulation? How can thisattempt to create social benefits create costs to the private institution?The qualified thrift lender test (QTL) requires thrifts to hold 65 percent of their assets in residential mortgage-related assets to retain the thrift charter. Some states have enacted usury laws that place maximum restrictions on the interest rates that can be charged on mortgages and/or consumer loans. These types of restrictions often create additional operating costs to the FI and almost certainly reduce the amount of profit that could be realized without such regulation.28. What is the purpose of the Home Mortgage Disclosure Act? What are thesocial benefits desired from the legislation? How does theimplementation of this legislation create a net regulatory burden onfinancial institutions?The HMDA was passed by Congress to prevent discrimination in mortgage lending. The social benefit is to ensure that everyone who qualifies financially is provided the opportunity to purchase a house should they so desire. The regulatory burden has been to require a written statement indicating the reasons why credit was or was not granted. Since 1990, the federal regulators have examined millions of mortgage transactions from more than 7,700institutions each calendar quarter.29. What legislation has been passed specifically to protect investors whouse investment banks directly or indirectly to purchase securities? Give some examples of the types of abuses for which protection is provided.The Securities Acts of 1933 and 1934 and the Investment Company Act of 1940 were passed by Congress to protect investors against possible abuses such as insider trading, lack of disclosure, outright malfeasance, and breach of fiduciary responsibilities.30. How do regulations regarding barriers to entry and the scope of permittedactivities affect the charter value of financial institutions?The profitability of existing firms will be increased as the direct andindirect costs of establishing competition increase. Direct costs include the actual physical and financial costs of establishing a business. In the case of FIs, the financial costs include raising the necessary minimum capital to receive a charter. Indirect costs include permission from regulatory authorities to receive a charter. Again in the case of FIs this cost involves acceptable leadership to the regulators. As these barriers to entry are stronger, the charter value for existing firms will be higher.31. What reasons have been given for the growth of investment companies atthe expense of “traditional” banks and insurance companies?The recent growth of investment companies can be attributed to two major factors:a. Investors have demanded increased access to direct securities markets.Investment companies and pension funds allow investors to take positions in direct securities markets while still obtaining the riskdiversification, monitoring, and transactional efficiency benefits offinancial intermediation. Some experts would argue that this growth isthe result of increased sophistication on the part of investors; otherswould argue that the ability to use these markets has caused theincreased investor awareness. The growth in these assets is inarguable.b. Recent episodes of financial distress in both the banking and insuranceindustries have led to an increase in regulation and governmentaloversight, thereby increasing the net regulatory burden of“traditional” companies. As such, the costs of intermediation haveincreased, which increases the cost of providing services to customers.32. What are some of the methods which banking organizations have employed toreduce the net regulatory burden? What has been the effect onprofitability?Through regulatory changes, FIs have begun changing the mix of businessproducts offered to individual users and providers of funds. For example, banks have acquired mutual funds, have expanded their asset and pension fund management businesses, and have increased the security underwriting activities. In addition, legislation that allows banks to establish branches anywhere inthe United States has caused a wave of mergers. As the size of banks has grown, an expansion of possible product offerings has created the potentialfor lower service costs. Finally, the emphasis in recent years has been on products that generate increases in fee income, and the entire bankingindustry has benefited from increased profitability in recent years.33. What characteristics of financial products are necessary for financialmarkets to become efficient alternatives to financial intermediaries?Can you give some examples of the commoditization of products which were previously the sole property of financial institutions?Financial markets can replace FIs in the delivery of products that (1) have standardized terms, (2) serve a large number of customers, and (3) are sufficiently understood for investors to be comfortable in assessing their prices. When these three characteristics are met, the products often can betreated as commodities. One example of this process is the migration of over-the-counter options to the publicly traded option markets as trading volume grows and trading terms become standardized.34. In what way has Regulation 144A of the Securities and Exchange Commissionprovided an incentive to the process of financial disintermediation?Changing technology and a reduction in information costs are rapidly changing the nature of financial transactions, enabling savers to access issuers of securities directly. Section 144A of the SEC is a recent regulatory change that will facilitate the process of disintermediation. The private placement of bonds and equities directly by the issuing firm is an example of a product that historically has been the domain of investment bankers. Although historically private placement assets had restrictions against trading, regulators have given permission for these assets to trade among large investors who have assets of more than $100 million. As the market grows, this minimum asset size restriction may be reduced.（注：可编辑下载，若有不当之处，请指正，谢谢!）。