Lisa is a recently hired junior analyst at XYZ Investments. Lisa and her supervisor, Berta, meet to discuss some of the firms investments in banks.

Berta asks Lisa to explain why the evaluation of banks is different from the evaluation of non-financial companies. Lisa tells Berta the following:

Statement 1: The assets of banks mostly consist of deposits, which are exposed to different risks than the tangible assets of non-financial companies.

Statement 2: As intermediaries, banks are more likely to be systemically important than non-financial companies.

Lisa and Berta also discuss key aspects of financial regulations, particularly the framework of Basel III. Berta tells Lisa:

Basel III specifies the minimum percentage of its risk-weighted assets that a bank must fund with equity. This requirement of Basel III prevents a bank from assuming so much financial leverage that it is unable to withstand loan losses or asset write-downs.

Berta tells Lisa that she uses the CAMELS approach to evaluate banks, even though it has some limitations.

Lisa informs Berta that ABC bank is very active in the 30-day reverse repurchase agreement market during times when the bank experiences significant increases in retail deposits.

27)

Which of Lisas statements regarding banks is correct?

(2pts)

Question 27 - Which of Lisas statements regarding banks is correct?

Select Only Statement 2 as your answer	Only Statement 2
Select Both Statement 1 and Statement 2 as your answer	Both Statement 1 and Statement 2
Select Only Statement 1 as your answer	Only Statement 1

28)

The aspect of the Basel III framework that Berta describes to Lisa relates to minimum:

(2pts)

Question 28 - The aspect of the Basel III framework that Berta describes to Lisa relates to minimum:

Select amounts of stable funding requirements. as your answer	amounts of stable funding requirements.
Select liquidity requirements. as your answer	liquidity requirements.
Select capital requirements. as your answer	capital requirements.

29)

One limitation of the approach used by Berta to evaluate banks is that it fails to address a banks:

(2pts)

Question 29 - One limitation of the approach used by Berta to evaluate banks is that it fails to address a banks:

Select competitive environment. as your answer	competitive environment.
Select management capabilities. as your answer	management capabilities.
Select sensitivity to market risk. as your answer	sensitivity to market risk.

30)

Based on ABC bank activities, the financial ratio most directly affected is the:

(2pts)

Question 30 - Based on ABC bank activities, the financial ratio most directly affected is the:

Select liquidity coverage ratio. as your answer	liquidity coverage ratio.
Select net stable funding ratio. as your answer	net stable funding ratio.
Select Tier 2 capital ratio. as your answer	Tier 2 capital ratio.