Question#1 [B1/C1] (16 marks)

Part-1

Nambia is an African country with the unit of currency of the Namib with 350 namibs []equal to $1.00 and 420 equal to 1. Nambia has a deposit insurance system that provides for coverage up to a limit of 12,000,000 per all eligible accounts in aggregate per bank. Not all accounts are covered by the Nambian deposit insurance system, which specifically excludes CDs with maturities in excess of 1 year and all inter-bank accounts. However, foreign currency accounts are included within the overall limit.

Suppose that an account holder has the following exposure in a bank that failed:

Savings Account = 350,000

Current Account = 350,000

CD (I year) = 250,000

CD (2 year) = 1,500,000

Foreign Currency Account-1: $1500

Foreign Currency Account-2:500

If there is currently no coinsurance in Nambia, how much can the account holder recover and how much does the account holder lose in the event that the bank goes insolvent? Express in both monetary amounts and percentage terms. [B1](12 marks)

Part-2

The Nambian government wants to reduce costs and exposure to deposit insurance claims from depositors in insolvent banks enrolled in the Nambian Deposit Insurance Scheme. Suppose that it introduces co-insurance. Recalculate the amount the account holder recovers and how much does the account holder lose in the event that the bank goes insolvent using the data in question 3a. above. Use co-insurance at rate of 20%. (Note: in effect this reduces maximum amount recoverable by 20% with the A/H absorbing that 20% incremental loss) [B1](4 marks)

Question#2 [B1/C1] (8 marks)

Currently, the Namib Deposit System in funded ex poste but the government has decided to shift to collection of premiums on an ex ante basis. Two premium collection schemes are proposed based on a percentage collection on total deposits held by any bank enrolled in the scheme. The following banks are enrolled in the Namib Deposit Insurance scheme:

NAME OF BANK TOTAL DEPOSITS

African Bank for Savings 45,000,000,000

Namib National Bank 25,000,000,000

Peoples Savings Bank 67,500,000,000

Namib Islamic Bank 75,000,000,000

Part-1

If annual premiums of .185% are collected from banks in the system, how much will be collected from each bank and how much in total at the end of the year? [B1](4 marks)

Part-2

Not all the banks are happy with the proposed scheme and the better managed banks propose to the government that premiums should be risked adjusted in light of performance on stress tests conducted by the Central Bank of Nambia. Take note of the following data:

NAME OF BANK STRESS TEST RESULT

African Bank for Savings C

Namib National Bank B

Peoples Savings Bank BC

Namib Islamic Bank A

In the grading, a stress test result of A is the best and C the worst. Suppose that the premiums are risk adjusted as follows:

STRESS TEST RESULT* RISK-ADJUSTED PREMIUM

A .135%

B .185%

C .235%

*With reference to In-between stress tests results (i.e. AB or BC), take the average of the two relevant letters.

How much will be collected from each bank and how much in total at the end of the year? [B1](4 marks)

ANSWER NEED TO BE IN EXCEL