1. Integrating Asset and Liability Management What is accomplished when a bank i
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Question
1. Integrating Asset and Liability Management What is accomplished when a bank integrates its liability management with its asset management?
2. Liquidity Given the liquidity advantage of holding Treasury bills, why do banks hold only a relatively small portion of their assets as T-bills?
3. Illiquidity How do banks resolve illiquidity problems?
4. Managing Interest Rate Risk If a bank expects interest rates to decrease over time, how might it alter the rate sensitivity of its assets and liabilities?
5. Rate Sensitivity List some rate-sensitive assets and some rate-insensitive assets of banks.
8. Managing Interest Rate Risk Assume that a bank expects to attract most of its funds through short-term CDs and would prefer to use most of its funds to provide long-term loans. How could it follow this strategy and still reduce interest rate risk?
13. Bank Management Dilemma Can a bank simultaneously maximize return and minimize default risk? If not, what can it do instead?
15. Bank Loan Diversification In what two ways should a bank diversify its loans? Why? Is international diversification of loans a viable strategy for dealing with credit risk? Defend your answer. 16. Commercial Borrowing Do all commercial borrowers receive the same interest rate on loans?
Explanation / Answer
ans 1) by Integrating Asset and Liability Management a bank actually improves its performance and thier interest rate risks gets reduces with this integration
Ans 2) Reason being is simple that why a bank holds relatively lower amount of T bills becasue the the yield earned on t bills are generalyy smaller and sometime what happens is that the cost of getting the t bills atre higher than the actual yield happens on the T bonds, hence bank do not hold them more.
Ans 3) bank can resolve its liquidity issue by selling their assets also bank have the options of borrwoing from federal banks. they can go for borrowing funds from federal bank as well.
Ans 4)by increasing its concentration of rate sensitivity liab. and reducing the assets rate sensitivoity concentration
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