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BFF2401 - Commercial banking and finance - S2 2025
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Which of the following statements is TRUE?
When market interest rates increase, depositors may shift funds out of their fixed-rate term deposits to invest elsewhere. And so the bank will have to refinance these deposits earlier than its expected schedule. This risk is referred to as:
Altman’s discriminant function takes the form:
Z = 1.2 Working capital/Total assets + 1.4 Retained earnings/Total assets + 3.3 EBIT/Total assets + 0.6 Market value of equity/Book value of total liabilities + 1.0 Sales/Total assets
How would you interpret a Z-score of 2.25?
Which of the following describes the condition known as runoff in the repricing model approach to measuring interest rate risk of an FI?
Monash Bank has a negative repricing gap and market interest rates are rising. If the interest rate on RSAs increases less than the interest rate on RSLs, the Net Interest Income of Monash Bank:
Consider the following scenario: an FI charges a 0.5% loan origination fee and imposes an 10% compensating balance requirement to be held as non-interest bearing demand deposits. It further sets aside reserves held at the central bank. The value of these reserves is 5% of deposits. The base lending rate is 11% and the credit risk premium for a specific borrower is 3%.
What is the expected return (NOT the gross return) on a loan if the probability of complete loan repayment is 92% (assuming the FI receives nothing in the event of loan default)?
(NOTE: By default, the unit of the answer is %. The answer must be input with two 2 decimal places, i.e. if the answer is 12%, please input 12.00)
If the chosen maturity buckets have a time period that is too long, the repricing model may produce inaccurate results because
Bank Omega has the following balance sheet.
Assets
|
$Amount
|
Average rate earned (per annum)
|
Liabilities & Equity
|
$Amount
|
Average rate paid (per annum)
|
|---|---|---|---|---|---|
Rate-sensitive
|
550,000
|
7.5%
|
Rate-sensitive
|
375,000
|
6.55%
|
Non-rate-sensitive
|
755,000
|
8.5%
|
Non-rate-sensitive
|
805,000
|
7.55%
|
Non-earning
|
265,000
|
|
Equity
|
390,000
|
|
Total
|
1,570,000
|
|
Total
|
1,570,000
|
|
What will the expected net interest income be at year-end if annual interest rates rise by 2 per cent (assuming a parallel shift in the yield curve)?
If a bank's concentration limit (as a percentage of capital) is 25 percent, and it does not permit a loss of any loan to impact more than 10 percent of its capital, what is the expected recovery rate on loans that are defaulted? (NOTE: Recovery rate + Loss rate = 100%)