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Graded Discussion Board No. 1

Money & Banking (MGT411)

Marks 30

TOPIC:

“Banking Panics & Crises and Government Role as Lender of Last Resort”

LEARNING OBJECTIVES:

Money & Banking students will be enabled to understand:

  • What are the different kinds of panics, crises and financial issues faced by banks and how to distinguish between them?
  • How banker of banks analyzes the situation of commercial banks and designs its policy or strategy accordingly.

 

Case:

A & D is a private commercial bank working since 2002. It employs over 3500 employees at 36 branches all across the country. Its balance sheet depicted total assets worth Rs 35.5 billion ranking it one among the top 15 commercial banks at December 30, 2006. With the advent of global recession in the banking industry, the change in the interest rate resulted in decreased value of its assets ultimately increasing the liabilities, back in 2009. Gradually it succumbed to the prevailing crisis and left with the only option to approach the central bank to lend it a helping hand.

The central bank upon the receipt of the request, constituted a committee of five members for this purpose. At the end of a thorough analysis, it delivered a decision to provide “short term loan” to the crisis stricken bank so that it may deal with the issue of liquidity.

Requirement:

  1. The decision of central bank to provide loan to commercial bank was correct or not?  (5 marks)
  2. Either yes or no support your answer with logical reasons. (20 marks)

(Note: if no, you are required to identify the mistake with logical reasoning.)

  1. What will be the result of the action/ decision taken by central bank? (5 marks)


Note: Complete your comment within 200 words 

Important Instructions:

 

1.   Your discussion must be based on logical facts.

2.   Do not copy or exchange your answer with other students.  Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.

3.   Obnoxious or ignoble answer should be strictly avoided.

4.   Questions / queries related to the content of the discussion board, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of discussion board is over.

v  For detailed instructions please see the discussion board announcement

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Replies to This Discussion

solution is coming soon.

12 baje k bad...

yr koi authentic points btao

MGT411 (Money & Banking)

1st GDB Solution

 

Ans:1

In my opinion the Central  Bank decision is correct,

 

Ans:2

Because we know that all commercial banks keep a certain portion of their deposits with central bank, and due to that central bank perform the function of lender of last resort.

And it is primary function of central bank that to keep economic & financial stability which is related to credit creation, so these can be achieved with the stability of commercial bank functions.

 

Ans:3

 

The lender of last resort functions protect to both individuals who have deposited funds, and to prevent panic withdrawing from banks that have temporary limited liquidity.

 

 

 

                                                                        Prepaid by,           

                                                           

                                                                        SAQIB HASSAN

 

thanks

saqib hassan gud keep it up & thanks for sharing 

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Diversify is best answer of this GDB

Requirement:

The decision of central bank to provide loan to commercial bank was correct or not? (5 marks)

Solution

According to me the Central Bank decision is correct.


Either yes or no support your answer with logical reasons. (20 marks)


Solution

As we know that all commercial banks keep a certain portion of their deposits with central bank, and due to that central bank perform the function of lender of last resort. And  it is primary function of central bank that to keep economic & financial stability which is related to credit creation, so these can be achieved with the stability of commercial bank functions.

What will be the result of the action/ decision taken by central bank? (5 marks)

Solution


The lender of last resort functions protect to both individuals who have deposited funds, and to prevent panic withdrawing from banks that have temporary limited liquidity.

  1. The decision of central bank to provide loan to commercial bank was correct or not?

Solution: In my opinion the decision of the board of central bank is correct. As we know that central banks are also called lender of last resort and more over it is also the part of their function that whenever some financial problem then they would provide load to them the get them out of that situation. 

  1. Either yes or no support your answer with logical reasons. 

Solution: Decision of giving short term loans was right because as we know its part of function of central bank to provide loans to commercial bank, and it is also source of revenue for central bank

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