What were the reasons for the crisis of the savings institutions industry in the mid-1980s?
> How has the size of the securities firm and investment banking industry changed since the late 1980s?
> An investment bank agrees to underwrite an issue of 15 million shares of stock for Looney Landscaping Corp. a. The investment bank underwrites the stock on a firm commitment basis, and agrees to pay $12.50 per share to Looney Landscaping Corp. for the 15
> An investor notices that an ounce of gold is priced at $1,018 in London and $1,025 in New York. What action could the investor take to try to profit from the price discrepancy? Which of the six trading activities would this be? What might be some impedim
> What was the largest single asset and largest single liability of securities firms in 2015?
> How did the financial crisis affect the performance of securities firms and investment banks?
> What factors contributed to the significant decrease in profits for securities firms in the early 2000s and the resurgence in profits in the middle of the first decade of the 2000s?
> What three factors accounted for the resurgence in profits for securities firms from 1991 to 2000?
> Why have brokerage commissions earned by securities firms fallen since 1977?
> How do agency transactions differ from principal transactions for market makers?
> What is the difference between pure arbitrage and risk arbitrage? If an investor observes the price of a stock trading in one exchange to be different from its price in another exchange, what form of arbitrage is applicable and how could the investor par
> How does the regulation of insurance companies compare with that of depository institutions?
> If an insurance company decides to offer a corporate customer a private pension fund, how would this change the balance sheet of the insurance company?
> Calculate the following: a. Suppose a 60-year-old person wants to purchase an annuity from an insurance company that would pay $15,000 per year until the end of that person’s life. The insurance company expects this person to live for 20 more years and w
> 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 association has $200 million of mortgages with a fixed rate
> How can life insurance and annuity products be used to create a steady stream of cash disbursements and payments to avoid either the payment or receipt of a single lump sum cash amount?
> Explain how annuities represent the reverse of life insurance activities.
> What are the similarities and differences among the four basic lines of life insurance products?
> How has the composition of the assets of U.S. life insurance companies changed over time?
> Contrast the balance sheets of depository institutions with those of life insurance firms.
> What is the investment yield on premiums earned? Why has this ratio become so important to property–casualty insurers?
> How is the combined ratio defined? What does it measure?
> What does the expense ratio measure? Identify and explain the two major sources of expense risk to a property– casualty insurer. Why has the long-term trend in this ratio been decreasing?
> What is the adverse selection problem? How does adverse selection affect the profitable management of an insurance company?
> What does the loss ratio measure? What has been the long term trend of the loss ratio? Why?
> Calculate the following: a. Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay $20,000 per year until the end of that person’s life. The insurance company expects this person to live for 15 more years and w
> Contrast the balance sheet of a property–casualty insurance company with the balance sheet of a commercial bank. Explain the balance sheet differences in terms of the differences in the primary functions of the two organizations.
> Which of the insurance lines listed below will be charged a higher premium by insurance companies and why? a. Low-severity, high-frequency lines versus high-severity, low-frequency lines. b. Long-tail versus short-tail lines.
> How do increases in unexpected inflation affect P&C insurers?
> Identify four characteristics or features of the perils insured against by property–casualty insurance. Rank the features in terms of actuarial predictability and total loss potential.
> What are the three sources of underwriting risk in the P&C industry
> How have P&C industry product lines based on net premiums written by insurance companies changed over time?
> What are the two major lines of property–casualty (P&C) insurance firms?
> How do life insurance companies earn profits?
> How do state guarantee funds for life insurance companies compare with deposit insurance for depository institutions?
> How does the primary function of an insurance company compare with that of a depository institution?
> You deposit $12,000 annually into a life insurance fund for the next 30 years, after which time you plan to retire. a. If the deposits are made at the beginning of the year and earn an interest rate of 7 percent, what will be the amount of retirement fun
> How and why is credit union membership limited?
> What does it mean when a savings institution is a mutual organization?
> What are the main assets and liabilities held by savings institutions?
> What two major pieces of legislation were adopted in the late 1980s and early 1990s to ameliorate the thrift crisis? Explain.
> What signal does a low debt-to-assets ratio for a finance company send to the capital markets?
> What is a wholesale motor vehicle loan?
> Why have finance companies begun to offer more mortgage and home equity loans?
> Why are finance companies less regulated than commercial banks?
> What advantages do finance companies have over banks in offering services to small-business customers?
> Why was the reported rate on motor vehicle loans historically higher for a finance company than a commercial bank? Why did this change in 1997?
> You deposit $10,000 annually into a life insurance fund for the next 10 years, after which time you plan to retire. a. If the deposits are made at the beginning of the year and earn an interest rate of 8 percent, what will be the amount in the retirement
> What are the major assets and liabilities held by finance companies?
> How does the amount of equity as a percentage of assets compare for finance companies and commercial banks? What accounts for the difference?
> What are the three types of finance companies and how do they differ from commercial banks?
> How did the corporate credit unions perform during the financial crisis?
> How have local credit unions performed over the last several decades?
> What was Bank Transfer Day?
> Why did commercial banks pursue legal action against the credit union industry in the late 1990s? What was the result of this legal action?
> Who are the regulators of credit unions?
> What are the main assets and liabilities held by credit unions?
> You deposit $10,000 annually into a life insurance fund for the next 10 years, at which time you plan to retire. Instead of a lump sum, you wish to receive annuities for the next 20 years. What is the annual payment you expect to receive beginning in yea
> How does the size of the credit union industry compare to the commercial banking industry?
> Describe the three-tier system that makes up the credit union industry.
> Why were credit unions less affected by the sharp increase in interest rates in the late 1970s and early 1980s than the savings institution industry?
> How do the balance sheets of savings institutions differ from those of commercial banks? How do their sizes compare?
> What is the Basel Agreement?
> Why are commercial banks subject to reserve requirements?
> What changes did the Federal Deposit Insurance Reform Act of 2005 make to the deposit insurance premium calculations?
> What are the provisions on interstate banking in the Riegle Neal Interstate Banking and Branching Efficiency Act of 1994?
> What changes did the Federal Deposit Insurance Reform Act of 2005 make to the deposit insurance assessment scheme for DIs?
> What are some of the main features of the Foreign Bank Supervision Enhancement Act of 1991?
> Calculate the following: a. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $240,000 for 20 years? Assume that the annuity will earn 7 percent per year. b. Calculate the annual cash flows from a $2.5 million,
> How have the International Banking Act of 1978 and the FDICIA of 1991 been detrimental to foreign banks in the United States?
> Identify the five zones of capital adequacy and explain the mandatory regulatory actions corresponding to each zone.
> How is the Tier I leverage ratio for an FI defined under Basel III?
> Under Basel III, what four capital ratios must DIs calculate and monitor?
> What is the significance of prompt corrective action as specified by the FDICIA legislation?
> If the reserve computation period extends from May 18 through May 31, what is the corresponding reserve maintenance period? What accounts for the difference?
> What is the capital conservation buffer? What is the countercyclical capital buffer?
> Under Basel III, how are risk weights for sovereign exposures determined?
> Under Basel III, how are residential one- to four-family mortgages assigned to a credit risk class?
> What forms of protection and regulation are imposed by regulators of CBs to ensure their safety and soundness?
> A property–casualty insurer brings in $5.55 million in premiums on its homeowners multiple line of insurance. The line’s losses amount to $3,962,700, expenses are $1,526,250, and dividends are $333,000. The insurer earns $349,650 in the investment of its
> Under the Federal Deposit Insurance Reform Act of 2005, how is a Category I deposit insurance premium determined?
> How does a bank’s asset size affect its financial ratios?
> How does a bank’s choice of market niche affect its financial ratios?
> What is the difference between the net interest margin and the spread?
> A bank has an ROA of 1.0 percent. The industry average ROA is 1.5 percent. How can ratio analysis help the firm’s managers identify the reasons for this difference?
> What are the definitional differences between Common Equity Tier I, Tier I, and Tier II capital?
> A security analyst calculates the following ratios for two banks. How should the analyst evaluate the financial health of the two banks? Bank A Bank B Return on equity 22% 24% Return on assets 2% 1.5% 11x Equity multiplier Profit margin 16x 15% 14%
> What is the likely relationship between the interest income ratio and the noninterest income ratio?
> How does the asset utilization ratio for a bank compare to that of a retail company? How do the equity multipliers compare?
> How might the use of an end-of-the-year balance sheet bias the calculation of certain ratios?
> A property–casualty insurer brings in $6.25 million in premiums on its homeowner’s MP line of insurance. The line’s losses amount to $4,343,750, expenses are $1,593,750, and dividends are $156,250. The insurer earns $218,750 in the investment of its prem
> What is the difference between Basel I, Basel II, and Basel III?
> What are the major categories of off-balance-sheet activities?
> How do core deposits differ from purchased funds?
> How does a retail CD differ from a wholesale CD?
> How does a NOW account differ from a demand deposit?
> Repurchase agreements are listed as both assets and liabilities in Table 12–1. How can an account be both an asset and a liability? Table 12–1: Heartland Bank and Trust Bank of America Assets 1. Vault cash 2. Ixp
> What is shadow banking? How does the shadow banking system differ from the traditional banking system?
> What insurance activities are permitted for U.S. commercial bank holding companies?
> A Section 20 subsidiary of a major U.S. bank is planning to underwrite corporate securities and expects to generate $5 million in revenues. It currently underwrites U.S. Treasury securities and general obligation municipal bonds and earns annual fees of
> How has the separation of commercial banking and investment banking activities evolved through time? How does this differ from banking activities in other countries?
