FIN 4100 Financial Institution Management

1a. Name two sources of purchased liquidity for a depository institution. b. Name two sources of stored liquidity for a depository institution. 3a. How much Tier 1 capital require is required under the risk adjusted capital requirements for a depository institution that has the following assets? $750 million in commercial loans with one to three years maturity; $50 million in B+ rated corporate bonds that mature in seven years; $600 million loans secured by first mortgages; $400 million in mortgage backed securities that are rated AA; and $250 million in Treasury notes with an average maturity of 5 years. b. If the depository institution from part a has the minimum total capital required for its risk adjusted assets, what is its leverage ratio? 5a. Depository institutions and insurance companies both carry reserves on their balance sheets in order to comply with regulatory requirements. a. Explain how the reserve accounts of these two institutions differ. b. Explain what each of these institutions would do in order to increase is reserves. 7. How do the assets and liabilities for which a financial institution analyzes risk using market risk analysis differ from those for which it analyzes risk using interest rate risk analysis? 9a. Identify and explain briefly two ways a hedge fund differs from a mutual fund? b. Identify and explain briefly two ways a pension fund differs from an exchange traded fund? 10. Use the information below to answer either I (a through d) or II (a through c). You can do both and if your score on the lower of the two is better than the lowest score on questions 1 through 9, it will replace that score.) The financial institution has bonds with market value of $450 million and a duration of 7.62 years. It uses the interest rates in the file “exam data” to determine its market risk. Ia. If the firm uses RiskMetrics, what standard deviation will the financial institution use to calculate the adverse interest rate change? b. What adverse interest rate change is expected to occur one day in fifty? c. Based on the adverse change in b, what is the daily earnings at risk for this bond? d. What is the value at risk for five days? IIa. If the financial institution uses historic back simulation, what adverse interest rate change is expected to occur one day in fifty? b. Based on the adverse change in a, what is the daily earnings at risk for this bond? c. What is the value at risk for five days?