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business
financial markets institutions

Questions and Answers of Financial Markets Institutions

What are the different firms in the securities industry and how do they differ from each other? (LG 16-1)
How has the size of the securities firm and investment bank- ing industry changed since the late 1980s? (LG 16-1)
In what ways are securities firms and investment banks financial intermediaries? (LG 16-1)
Calculate the percent of investment securities to total assets, loans to total assets, deposits to total assets, and equity to total assets. How have these changed since 2010?
Calculate the percentage change in total assets for the commercial bank industry since 2010 reported in Table 11-2.
What are the advantages and disadvantages of international expansion? (LG 11-8)
For each of the following banking organizations, identify which regulatory agencies (OCC, FRB, FDIC, or state banking commission) may have some regulatory supervi- sion responsibility. (LG 11-7)a.
What are the main advantages of being a member of the Federal Reserve System? (LG 11-7)
What are the major functions performed by the FDIC? (LG 11-7)
Who are the major regulators of commercial banks? Which banks does each agency regulate? (LG 11-7)
Which commercial banks are experiencing the highest prof- itability? Which commercial banks are experiencing the lowest profitability? (LG 11-6)
How has the performance of the commercial banking indus- try changed in the last twenty years? (LG 11-6)
How do small bank activities differ from large bank activi- ties? (LG 11-5)
What are the differences between community banks, regional banks, and money center banks? Contrast the busi- ness activities, locations, and markets of each of these bank groups. (LG 11-6)
What is a money center bank and a regional bank? (LG 11-5)
What were some of the biggest mergers that occurred around the passage of the 1999 Financial Services Modern- ization Act? What were the incentives for these mergers? (LG 11-5)
What has been the recent trend in the number of commercial banks in the United States? What factors account for this trend? (LG 11-5)
What are the main off-balance-sheet activities undertaken by commercial banks? (LG 11-4)
What types of activities are normally classified as off- balance-sheet (OBS) activities? (LG 11-4)a. How does an OBS activity move onto the balance sheet as an asset or liability?b. What are the
How does one distinguish between an off-balance-sheet asset and an off-balance-sheet liability? (LG 11-4)
What is meant by an off-balance-sheet activity? What are some of the forces responsible for them? (LG 11-4)
Compare and contrast the profitability ratios (ROE and ROA) of banks with assets below and above $100 million in Figure 11-7 from 1990 through 2010. What conclusions can you derive from those
The following balance sheet accounts (in millions of dol- lars) 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
How does the liability maturity structure of a bank's bal- ance sheet compare with the maturity structure of the asset portfolio? What risks are created or intensified by these dif- ferences? (LG
What are the three major segments of deposit funding? How are these segments changing over time? Why? What strate- gic impact do these changes have on the profitable operation of a bank? (LG 11-3)
What type of transaction accounts do commercial banks issue? Which type of accounts have dominated transaction accounts of banks? (LG 11-3)
What are the principal liabilities for commercial banks? What does this liability structure tell us about the maturity of the liabilities of banks? What types of risks does this lia- bility structure
Why do commercial banks hold investment securities? (LG 11-2)
What are the principal types of financial assets for commer- cial banks? How has the relative importance of these assets changed over the past five decades? What are some of the forces that have
What are the major sources of funds for commercial banks in the United States? What are the major uses of funds for commercial banks in the United States? For each of your answers, specify where the
What is meant by the term depository institution? How does a depository institution differ from an industrial corpora- tion? (LG 11-1)
What countries are currently the biggest traders of derivative securities?
By what percentage have these values changed since 2009 as reported in Tables 10-9 and 10-10?
A commercial bank has $200 million of floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of fixed-rate deposits costing 9 percent. A savings bank
An insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed-rate guaranteed invest- ment contracts (GICs) costing 10
A stock is currently selling for $75 per share. You could purchase a call with a strike price of $70 for $7. You could purchase a put with a strike price of $70 for $2. Calculate the intrinsic value
What must happen to the price of MMC Corp. stock for you to make a profit? (LG 10-4)
You have bought a March call option on MMC Corp. com- mon stock, which has a strike price of 15 and a premium of
You have purchased a put option on Kimberly Clark com- mon stock. The option has an exercise price of $65.00 and Kimberly Clark's stock currently trades at $66.18. The option premium is $1.25 per
You have purchased a call option on Johnson & Johnson common stock. The option has an exercise price of $57.50 and J & J's stock currently trades at $58.93. The option pre- mium is $2.17 per
Refer to Table 10-6. (LG 10-5)a. How many American Airlines November 2010 7.00 put options were outstanding at the open of trading on September 1, 2010?b. What was the closing price of a 10-year
You have purchased a put option on Pfizer common stock. The option has an exercise price of $38 and Pfizer's stock currently trades at $40. The option premium is $0.50 per contract. (LG 10-4)a. What
You have taken a long position in a call option on IBM com- mon stock. The option has an exercise price of $136 and IBM's stock currently trades at $140. The option premium is $5 per contract. (LG
Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 105-100. Dudley Savings thinks interest rates will go down over the period of
Tree Row Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 95-040. Tree Row thinks interest rates will go up over the period of investment. (LG
cel Using a Spreadsheet to Calculate Profit and Loss on Futures Transactions: At the begin- ning of the quarter, you purchased a $100,000 Treasury bond futures contract for 108-12. Calculate the
Suppose you purchase a Treasury bond futures contract at a price of 95 percent of the face value, $100,000. (LG 10-3)a. What is your obligation when you purchase this futures contract?b. Assume that
Refer to Table 10-4. (LG 10-3).a. What was the settlement price on the December 2011 Eurodollar futures contract on September 1, 2010?b. How many 5-year Treasury note futures contracts traded on
What are the differences between a cap, a floor, and a col- lar? When would a firm enter any of these derivative secu- rity positions? (LG 10-8)
An American firm has British pound-denominated accounts payable on its balance sheet. Managers believe the exchange rate of British pounds to U.S. dollars will depreciate before the accounts will be
A commercial bank has fixed-rate long-term loans in its asset portfolio and variable-rate CDs in its liability portfo- lio. Bank managers believe interest rates will increase in the future. What side
Which party is the swap buyer and which is the swap seller in a swap transaction? (LG 10-7)
What is the difference between an interest rate swap and a currency swap? (LG 10-7)
What is a swap? (LG 10-7)
Who are the major regulators of futures and options mar- kets? (LG 10-6)
What factors affect the value of an option? (LG 10-4)
What are the three ways an option holder can liquidate his or her position? (LG 10-4)
What must happen to the price of the underlying stock for the purchaser of a put option on the stock to make money? How does the writer of the put option make money? (LG 10-4)
What must happen to the price of the underlying T-bond futures contract for the purchaser of a call option on T-bond futures to make money? How does the writer of the call option make money? (LG 10-4)
What is the difference between a call option and a put option? (LG 10-4)
What is an option? How does an option differ from a for- ward or futures contract? (LG 10-4)
Refer to Table 10-4. (LG 10-3)a. If you think 15-year Treasury note prices will fall between September 1, 2010, and March 2011, what type of futures position would you take?b. If you think inflation
What is the meaning of a Treasury bond futures price quote of 103-13? (LG 10-3)
When is a futures or option trader in a long versus a short position in the derivative contract? (LG 10-2)
What is the purpose of requiring a margin on a futures or option transaction? What is the difference between an initial margin and a maintenance margin? (LG 10-2)
What are the functions of floor brokers and professional traders on the futures exchanges? (LG 10-2)
What are the differences between a spot contract, a forward contract, and a futures contract? (LG 10-1)
What is a derivative security? (LG 10-1, LG 10-4, LG 10-7)
Calculate the percentage change in each of these rates since July 2010.
What are the current levels for each of these interest rates?
The FOMC has instructed the FRBNY Trading Desk to purchase $750 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction
The FOMC has instructed the FRBNY Trading Desk to purchase $500 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 5 percent of transaction
MHM Bank currently has $250 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is increasing this requirement to 12 percent.
National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8
BSW Bank currently has $150 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. ( LG 4-3 )a. If
Bank Three currently has $600 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. ( LG 4-3 )a.
Suppose the Federal Reserve instructs the Trading Desk to sell $850 million of securities. Show the result of this transaction on the balance sheets of the Federal Reserve System and commercial
Suppose the Federal Reserve instructs the Trading Desk to purchase $1 billion of securities. Show the result of this transaction on the balance sheets of the Federal Reserve System and commercial
Describe how expansionary activities conducted by the Federal Reserve impact credit availability, the money supply, interest rates, and security prices. Do the same for contractionary activities. (
Which of the monetary tools available to the Federal Reserve is most often used? Why? ( LG 4-3 )
What changes did the Fed implement to its discount window lending policy in the early 2000s? in the late 2000s? ( LG 4-3 )
Why does the Federal Reserve rarely use the discount rate to implement its monetary policy? ( LG 4-3 )
Explain how a decrease in the discount rate affects credit availability and the money supply. ( LG 4-3 )
What are the tools used by the Federal Reserve to implement monetary policy? ( LG 4-3 )
What are the major assets of the Federal Reserve System? Describe each. ( LG 4-2 )
Why did reserve deposits increase to the point that this account represented the largest liability account on the Federal Reserve’s balance sheet in the late 2000s? ( LG 4-2 )
What are the major liabilities of the Federal Reserve System? Describe each. ( LG 4-2 )
What are the primary responsibilities of the Federal Open Market Committee? ( LG 4-2 )
What are the primary responsibilities of the Federal Reserve Board? ( LG 4-1 )
Describe the structure of the Board of Governors of the Federal Reserve System. ( LG 4-2 )
Define the discount window and the discount rate. ( LG 4-2 )
Describe the functions performed by Federal Reserve Banks. ( LG 4-1 )
Compare the charge-off rate of C&I loans with real estate and credit card loans. Which has changed the most since 2010?
How has the charge-off rate changed since 2010 as reported in Figure 19-1?
Suppose you purchase a 10-year AAA-rated Swiss bond for par that is paying an annual coupon of 8 percent and has a face value of 1,000 Swiss francs (SF). The spot rate is U.S. $0.66667 for SFI. At
Six months ago. Qualitybank issued a $100 million, one-year-maturity CD, denominated in British pounds (Euro CD). On the same date, $60 million was invested in a -denominated loan and $40 million in
Assume that a bank has assets located in Germany worth 150 million earning an average of 8 percent. It also holds 100 in liabilities and pays an average of 6 percent per year. The current spot rate
If a bank invested $50 million in a two-year asset paying 10 percent interest per year and simultaneously issued a $50 million one-year liability paying 8 percent interest per year, what would be the
Consider the following income statement for WatchoverU Savings Inc. (in millions): (LG 19-1) Assets Liabilities Floating-rate NOW accounts mortgages (currently (currently 6% annually) $.70 10%
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 is distributed as dividends.d. If market interest rates had

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