• +44-190-022-0819 +44-190-022-0819
  • +1-248-268-9041 +1-248-268-9041
  • +61288800241 +61288800241

SEARCH SOLUTION

Search your solution from list of 1000+ questions

30-08-2018

Product code: Accounts-AW584

 

Question 1

a.         According to the theory of finance, why do banks exist in modern society? (30 marks)

b.         How has banking changed in recent years? (30 marks)

c.         Can you explain why many of changes have led to significant problems for bank managers and stockholders? (40 marks)

 

Question 2

ABC Bank has recorded the following financial data for the past three years (£ in millions):

 

                                                                Current Year      Previous Year    Two Years Ago

Interest revenues                                            £57                    £56                      £55

Interest expenses                                              49                      42                        34

Loans (excluding nonperforming)                 411                    408                      406

Investments                                                    239                    197                      174

Total deposits                                                 487                    472                      467

Money market borrowings                             143                    118                        96            

 

Calculate the Net Interest Margins (NIM) for 3 years and explain the results of your calculations. (50 marks)

 

  1. The First National Bank has the following interest-sensitive gaps:

 

 

Coming Week

Next 30 Days

Next 31-90 Days

More than 90 days

Interest

£144

£110

£164

£184

Sensitive

+29

+19

29

8

Assets

£173

£129

£193

£192

 

 

 

 

 

Interest

£232

£0

£  0

£  0

Sensitive

98

84

196

35

Liabilities

36

6

0

0

 

£366

£90

£196

£35

 

Using the information above calculate the GAP and cumulative GAP and explain the implications of the cumulative GAP throughout the period. Explain how bank management may address the issue arising from the mismatching of assets and liabilities. (50 marks)

 

Question 3

Assume you are a trader with Deutscne Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting €0.7627/$1.00 while Credit Suisse is offering SF1.1806/$1.00. You learn that UBS is making a direct market between Swiss franc and the euro, with a current €/SF quote of .6395. Show how you can make a triangular arbitrage profit by trading at these prices. Assume you have $5,000,000 with which to conduct the arbitrage. What happens if you initially sell dollars for Swiss francs? What €/SF price will eliminate triangular arbitrage? (100 marks)

 

 

 

Question 4

Explain banker’s acceptance and why firms make use of such money market security. (20 marks)

  1. Outline the defining features of commercial paper and explain why, from time to time, banking firms and other corporations make use of the commercial paper market. To what extent is the commercial paper market highly liquid? (40 marks)
  2. ED Electronics recently announced a commercial paper issue with 90 days to maturity. The underwriting investment bank indicates that the discount rate should be 7.8 percent. (i) Calculate the issue price, and (ii) the money market yield? (25 marks)
  3. The yield at issue on a 60-day commercial paper issued by ED Electronics is 6.595 percent. What was the discount rate? (15 marks)

 

Question 5

Outline and explain, using examples:

  1. The preferred habitat theory of the term structure of interest rates. (25 marks)
  2. The risk structure of interest rates. (35 marks)
  3. The yields and term to maturity on UK Government securities are as follows:

 

Security             Term (years)             Yield

1                        1                               10.5

2                        2                               11.8

3                        4                               12.6

4                        8                               13.7

5                        16                             14.0

 

  1. Use the data to construct a yield curve.
  2. Does the yield curve indicate inefficiencies in the market? Explain. (10 marks)
  3. Are there any pricing inefficiencies that might yield profitable opportunities? Explain. (10 marks)
  4. Let the annualized interest rate on a three year security of this day be 12 percent, while the annualized rate of interest on a two year security is 9 percent. Show that the one year forward rate two years from now is 18.25%. (10 marks)

 

Question 6

List and explain the various FTSE indices.

  1. What are the purpose of the role of brokers and market makers in the buying and selling of stocks traded on the London stock market? Describe and illustrate how market makers are compensated for maintaining a liquid market.
  2. After first reporting earnings growth for most of the 1990s, the EAE Company began experiencing a 6 percent per year decline in its cash dividend growth rate for the latter half of the decade; this decline is expected to continue in 2000. EAS has a current dividend per share of £3.
  1. If EAE’s required rate of return is 14.5 percent, what is a share of the stock worth?
  2. On the assumption that conditions remain the same, what will EAE’s price be a years from now?

 

 

 

Question 7

Describe the main defining characteristics of traded options, calls and puts, on stocks and explain how the availability of futures and options markets facilities the growth of an economy. (60 marks)

 

  1. Let Next stock be trading at £45.

                                                           

Exercise price             Call                 Put

£50

 45

 40

 35                                                      

 

Indicate for each of the above calls and puts if the option is in-the-money, at-the-money, or out-of-the-money. (10 marks)

 

 

  1. Let EAE.com current stock price be £4.50. An investor purchases from LIFFE one October call options on EAE.com stocks at £38p, which has an exercise price of £4.65. The option is of the European variety. Hence explain whether or not the call option will be exercised if EAE stock price on the expiration date of the call option is:

 

  1. £5.30
  2. £4.60
  3. £4.68
  4. Calculate, in each of these cases, the profit of the call option writer. (30 marks)

 

 

 

Download Questions

An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.The two types of options are calls and puts:

Related Questions in (Accounting)

13-01-2018

Solution: The Journal of Helene Berr and Rue Ordener, Rue Labat 2 evidences that prove the difficulty and destructiveness that the people had to face in those four years. As mentioned by Berr (2009, p.23), in h ...

18-01-2018

Solution: Employee communication highlights the sharing of ideas and information. In this competitive business world, information exchange is essential among employees to develop team performance effectively. m ...

18-01-2018

Solution: As per Section 1 of the Thirteenth year plan describes about China’s two key objectives that will be accomplished if the National People’s Congress or the standing committee of this party passes t ...

18-01-2018

Solution: (Feldman 2005) reference information extraction to be one of the weightiest pre-processing method that escalates the text mining potential significantly. Pre-processing is an essential part in informa ...

18-01-2018

Solution: The pro forma income statement represents a trending statement that includes the probable net income value for the company considering the current growth and decline rates valid throughout the period ...

18-01-2018

Solution: Mode is defined as the value which occurs more frequently in the data set. The mode for non-business is 82 while for business is only 59. P value can be calculated from z table . As per z table p valu ...

18-01-2018

Solution: ABC assumes that there are different activities involved in different processes that cause costs andthe product, services, and customers are reasons for those activities. The UK customer segment is br ...

19-01-2018

Solution: Residual earnings valuation method is used to calculate the intrinsic value of the stock based on the expected residual income of the company in the coming years. The residual income is discounted bac ...