1. How does the proportion of capital for a typical bank compare with that of a typical industrial firm? Do you believe banks have adequate capital? Why?
2. What are the main factors a bank must consider when setting the interest rate to offer on deposits?
3. Define bank capital. What is the economic importance of capital to a firm?
4. What are the major uses of funds for a bank? What are the differences between large and small banks? Explain the difference.
5. Why do banks hold Treasury securities and state government bonds investment portfolios?
6. Why do you think small banks have a higher proportion of assets in investments than do large banks?
7. What customer characteristics do banks typically consider in evaluating consumer loan applications? How does each of these factors influence the decision of the bank to grant credit?
8. What do we mean by off-balance-sheet activities? If these things are not on the balance sheet, are they important? What are some off-balance-sheet activities?
9. What are the major benefits of getting assets off the balance sheet through either loan sales orsecuritisation?
10. What is a contingent asset? What is a contingent liability? Provide an example of each.
11. Explain the profitability versus solvency and liquidity dilemma facing bank management.
12. Explain why the credit risk associated with a loan portfolio is less than the sum of the credit risk associated with each of the loans in the portfolio.
13. Liquidity management can be practised on either side of the balance sheet. How are asset and liability management similar and how do they differ? Why do smaller banks have limited access to liabilitymanagement?