Describe at least five non-mutually exclusive activities performed by financial institutions.
Explanation and discussion
1-The best way to characterize and distinguish financial institutions is through descriptions of the sets of activities they perform and the risk-return trade-offs these activities involve, not through their historical distinct types. Describe at least five non-mutually exclusive activities performed by financial institutions. (2.5 Marks)
2) Under regulatory capital requirements, banks must maintain various measures of equity above certain percentages of corresponding measures of assets. The intent of capital requirements is to ensure that banks are and will remain solvent so that they are above to pay off their liabilities as they come due. Currently, there are three main capital ratios for which requirement exists. Explain any two of them. (2.5 Marks)
3) The distinction of operating, investing, and financing cash flows on the cash flow statement is generally arbitrary for thrifts and most other financial institutions since most of their activities are financial in nature. Prepare a cash flow statement of a thrift with imaginary figures. (2.5 Marks)
4) There are two alternative views of interest rate risk. Under the first view, interest is defined as the variability of the value of a financial instrument, and under the second view as the variability of the cash flows of a financial instrument. Explain these views with numerical examples. (2.5 Marks)
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