Financial Institutions 

Explain the credit-risk mismatch surplus (e.g. depositors)

and deficit (e.g. home-loan borrowers) units that prevents the flow of funds in

direct finance. 

Then, explain how banks overcome this mismatch by transforming

credit risk, that allows low credit-risk deposits to be lent out as higher

credit-risk home loans? Include in your answer the role that financial regulation

plays in this process. 

Monash Bank has $400 million of interest-earning assets yielding

4% and $550 million in liabilities that cost 1.5%. Monash Bank has $600 million

in debt and $60 million in equity. Calculate the Net Interest Margin (also

called Interest Rate Margin) of the bank, to 2 decimal places. Show your

working by identifying the answers to the variables of the NIM formula. 

(2 + 6 + 4 =12 marks)

Apply the specific theory of Foundations of Finance to

answer the following questions only. Curriculum from any other unit, AI answers

or internet answers are easily recognisable and will earn 0 marks.