We are here with you hands in hands to facilitate your learning & don't appreciate the idea of copying or replicating solutions. Read More>>

Looking For Something at vustudents.ning.com? Click Here to Search

www.bit.ly/vucodes

+ Link For Assignments, GDBs & Online Quizzes Solution

www.bit.ly/papersvu

+ Link For Past Papers, Solved MCQs, Short Notes & More


Dear Students! Share your Assignments / GDBs / Quizzes files as you receive in your LMS, So it can be discussed/solved timely. Add Discussion

How to Add New Discussion in Study Group ? Step By Step Guide Click Here.

MGT411 Assignment No 02 Solutoin & Discussion DUE DATE: 8TH JANUARY, 2013

Question No. 1:
a) You are a bank manager and given the responsibility to manage the liquidity risk being faced by the bank. The Balance Sheet of the bank is given below:
Table: Balance sheet of a bank holding no excess reserves
Assets (in Million)
Liabilities (in Million)
Reserves Rs.15 million
Deposits Rs.90 million Rs.100million
Loans Rs.95 million
Borrowed funds Rs.35 million
Securities Rs.35 million
Bank capital Rs.20 million
A customer demands Rs.5 million cash withdrawals from the bank; what changes in the above Balance Sheet will occur if you decide to manage the liquidity risk through:
1. Adjusting assets by:
a. Selling the securities
b. Reducing the loans
2. Adjusting liabilities by:
a. Borrowings
b. Attracting deposits
Note: You are required to prepare four different Balance Sheets for each of the above mentioned strategies. (10 marks)
b) Discuss why bankers prefer liability management over asset management in order to mitigate liquidity risk? (5 marks)
Question No. 2:
a) You, as a bank manager, are managing the bank’s assets and liabilities in such a way that interest rate the bank has to pay on its liabilities is 4% while interest rate the bank charges on its various assets is 6%. Suppose 30% of the bank’s assets fall into the category of interest-sensitive while others are not sensitive to the changes in interest rate. Similarly, half of the bank’s liabilities are interest-sensitive while rests of the half are not. What will be the impact on the profitability of the bank if the interest rate rises by 1% on all assets and liabilities of the bank? (10 marks)
b) What will be the impact of increase in interest rate on the profitability of the bank if the bank has more interest-sensitive liabilities than interest-sensitive assets? (5 marks)

+ How to Follow the New Added Discussions at Your Mail Address?

+ How to Join Subject Study Groups & Get Helping Material?

+ How to become Top Reputation, Angels, Intellectual, Featured Members & Moderators?

+ VU Students Reserves The Right to Delete Your Profile, If?


See Your Saved Posts Timeline

Views: 6482

.

+ http://bit.ly/vucodes (Link for Assignments, GDBs & Online Quizzes Solution)

+ http://bit.ly/papersvu (Link for Past Papers, Solved MCQs, Short Notes & More)

+ Click Here to Search (Looking For something at vustudents.ning.com?)

+ Click Here To Join (Our facebook study Group)

Attachments:

Replies to This Discussion

Q.No.01

Part a

 

 A customer demands Rs.5 million cash withdrawals from the bank; what changes in the above Balance Sheet will occur if you decide to manage the liquidity risk through:

  1. 1.         Adjusting assets by:

Increase the selling securities to 30 million and loan to 100 million  

 

  1. 2.         Adjusting liabilities by:

Browed 35 million increase to 40 million and loan increase 95 to 100 million.

 

Q.No.01

Part B

Discuss why bankers prefer liability management over asset management in order to mitigate
liquidity risk?

Bankers prefer liability management over asset management in order to mitigate liquidity risk because they want to maintain securities and reserves because interest rate on borrowed and deposits in near to equal. For example when bank take loan from stat bank its 8% but when it give loan to customer it is 12% 

 What will be the impact of increase in interest rate on the profitability of the bank if the bank has more interest-sensitive liabilities than interest-sensitive assets?

70+3.5+30+1.2

100+4.7

104.7

here profit will 2.0

 

Deposit

Loan

4%

6%

104

106

50+2.5+50+2

70+4.9+30+1.8

104.5 payable

106.7 recievable

 

 

 

a) You, as a bank manager, are managing the bank’s assets and liabilities in such a way that interest rate the bank has to pay on its liabilities is 4% while interest rate the bank charges on its various assets is 6%. Suppose 30% of the bank’s assets fall into the category of interest-sensitive while others are not sensitive to the changes in interest rate. Similarly, half of the bank’s liabilities are interest-sensitive while rests of the half are not. What will be the impact on the profitability of the bank if the interest rate rises by 1% on all assets and liabilities of the bank? (10 marks)

Deposit

Loan

4%

6%

104

106

50+2.5+50+2

70+4.9+30+1.8

104.5 payable

106.7 recieveable

 

 

    if the interest rate rises by 1% on all assets and liabilities of the bank the profit will 2.2

 What will be the impact of increase in interest rate on the profitability of the bank if the bank has more interest-sensitive liabilities than interest-sensitive assets?

70+3.5+30+1.2

100+4.7

104.7

here profit will 2.0

 

Deposit

Loan

4%

6%

104

106

50+2.5+50+2

70+4.9+30+1.8

104.5 payable

106.7 recievable

 

 

 

Sir which method is correct ???? if this is correct which u posted then wht is explained in handsout pg # 83??? kindly please sout out this problem

MGT411

Assignment # 2

Question No. 1 Part (a)

Solution:

Topic: Balance Sheet

1: Adjusting Assets by:

 

(a) Withdrawal is met by selling securities:

 

Table: Balance sheet of a bank holding no excess reserve

Assets (in Million)

Liabilities (in Million)

Reserves                        Rs.15

Deposits                              Rs.85

Loans                             Rs.95

Borrowed                             Rs.35

Securities                      Rs.30

Bank Capital                        Rs.20

 

 

(b) Withdrawal is met by reducing loans:

 

Table: Balance sheet of a bank holding no excess reserve

Assets (in Million)

Liabilities (in Million)

Reserves                        Rs.15

Deposits                              Rs.85

Loans                             Rs.90

Borrowed                             Rs.35

Securities                      Rs.35

Bank Capital                        Rs.20

 

 

 

 

2: Adjusting Liabilities by:

 

(a) Withdrawal is met by borrowings:

 

Table: Balance sheet of a bank holding no excess reserve

Assets (in Million)

Liabilities (in Million)

Reserves                        Rs.15

Deposits                              Rs.85

Loans                             Rs.95

Borrowed                             Rs.40

Securities                      Rs.35

Bank Capital                        Rs.20

 

 

(b) Withdrawal is met by attracting deposits:

 

Table: Balance sheet of a bank holding no excess reserve

Assets (in Million)

Liabilities (in Million)

Reserves                        Rs.15

Deposits                              Rs.90

Loans                             Rs.95

Borrowed                             Rs.35

Securities                      Rs.35

Bank Capital                        Rs.20

 

Question No. 1 Part (b)

Solution:

Topic: Liquidity Risk

 

Liquidity risk is the risk of a sudden demand for funds and it can come from both sides of a bank’s balance sheet. All business need to manage liquidity risk to ensure that they remain solvent. Liquidity risk has two ways which are adjusting by assets and adjusting by liabilities. So bankers prefer liability management over asset management in order to mitigate liquidity risk because they have to maintain the securities and reserves because interest rate on borrowed and deposits are near to equal.

 

 

 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Question No. 2 Part (a)

Solution:

Topic: Interest Rate Risk

 

Table: Interest Rate Risk

Items

Assets

Liabilities

Interest rate sensitive

$ 30

$50

Not interest rate sensitive

$ 70

$ 50

Initial interest rate

6%

4%

New interest rate on interest rate sensitive assets and liabilities

7%

5%

 

Revenue from assets

Cost of liabilities

At initial interest rate

(0.06*$30) + (0.06*$70) = $6.00

(0.04*$50) + (0.04*$50) =$4.00

After interest rate change

(0.07*$30) + (0.06*$70) = $6.3

(0.05*$50) + (0.04*$50) = $4.5

Profits at initial interest rate:

($6.00) – ($4.00) = $2.00 per $100 in assets

Profits after interest rate change:

($6.30) – ($4.5) = $1.8 per $100 in assets

 

 

Question No. 2 Part (b)

Solution:

 

If the bank has more interest sensitive liabilities than interest sensitive assets and an increase in interest rate will cut into the bank’s profits. It simple means that the profit of the bank is low down.                                                                            

 Obedient Evil thanks for sharing 

Note for All Members: You don’t need to go any other site for this assignment/GDB/Online Quiz solution, Because All discussed data of our members in this discussion are going from here to other sites. You can judge this at other sites yourself. So don’t waste your precious time with different links.

Assignment 2 Solution 

Table: Balance Sheet of a bank holding no excessive reserves
Assets Liabilities
Reserves Rs.15 Deposits Rs.90
Loans Rs.95 Borrowed funds Rs.35
Securities Rs.35 Bank Capital Rs.20

A Customers demands RS.5 million cash withdrawal from the bank 
1-Adjusting Assets

Table: Balance Sheet of a bank holding no excessive reserves
A)Withdrawal is met by Selling the securities
Assets Liabilities
Reserves Rs.15 Deposits Rs.85
Loans Rs.95 Borrowed funds Rs.35
Securities Rs.30 Bank Capital Rs.20

Table: Balance Sheet of a bank holding no excessive reserves
B)Withdrawal is met by reducing the loan
Assets Liabilities
Reserves Rs.15 Deposits Rs.85
Loans Rs.90 Borrowed funds Rs.35
Securities Rs.35 Bank Capital Rs.20




2-Adjusting liabilities

Table: Balance Sheet of a bank holding no excessive reserves
A)Withdrawal is met by borrowing
Assets Liabilities
Reserves Rs.15 Deposits Rs.85
Loans Rs.95 Borrowed funds Rs.40
Securities Rs.35 Bank Capital Rs.20

Table: Balance Sheet of a bank holding no excessive reserves
B)Withdrawal is met by attracting deposits
Assets Liabilities
Reserves Rs.15 Deposits Rs.90
Loans Rs.95 Borrowed funds Rs.35
Securities Rs.35 Bank Capital Rs.20

 

RSS

Latest Activity

Profile IconNoor ul Ain, Muhammad atif, marium and 5 more joined Virtual University of Pakistan
7 minutes ago
乇メ-丂イひり3刀イ. liked Momin Qureshi's blog post تاجدارِ ختم نبوت صلی اللّٰہ علیہ وسلم زندہ آباد
13 minutes ago
乇メ-丂イひり3刀イ. liked Ayesha's discussion Sach to Hai....
17 minutes ago
乇メ-丂イひり3刀イ. liked Ayesha's discussion Golden Words.....
18 minutes ago
+ ! ! ! ! ! Rose Marries꧂ replied to + ! zεε's discussion INDO - CHINA Conflict
33 minutes ago
Profile IconZeeshan Afzal and zaini joined +M.Tariq Malik's group
39 minutes ago
Zeeshan Afzal liked +M.Tariq Malik's group MGT211 Introduction To Business
39 minutes ago
+ ! ! ! ! ! Rose Marries꧂ liked + ! zεε's discussion INDO - CHINA Conflict
40 minutes ago
Mani Siddiqui BS VIII posted a status
"Unko khabar nahi hui, nah zamana samjh saka, Hum chupke chupke un par kai bar mar gae."
44 minutes ago
Ayesha posted discussions
53 minutes ago
Ayesha posted a status
"What's on your mind? Latest Happenings, and How Was Your Day?"
56 minutes ago
Ayesha replied to Ayesha's discussion Sach to Hai....
58 minutes ago

Today Top Members 

© 2020   Created by +M.Tariq Malik.   Powered by

Promote Us  |  Report an Issue  |  Privacy Policy  |  Terms of Service

.