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SEMESTER FALL 2013
MONEY & BANKING (MGT411)
ASSIGNMENT NO.02 (NON-GRADED ACTIVITY)
DUE DATE: 26THJANUARY 2014 MARKS: 20
It will enable the student to:
• Identify the various items of bank’s balance sheet according to their nature.
• Prepare bank’s balance sheet.
• Identify different types of risks that a bank is exposed to and their effects.
• Design strategy to overcome the effect of those risks.
After going through this activity, the students would be able to
• Prepare bank’s balance sheet.
• Identify the nature of specific bank risk.
• Identify the possibilities to overcome the effects of specific risk.
AKS bank limited is a private sector bank in Pakistan. It incorporated in 2004. It offers
broader range of services to its customers including small businesses, other retailers, medium
size and large size corporations.
AKS bank is always concerned for its performance, risk management and customers’
satisfaction. Effective risk and capital management is fundamental to the sustainability of the
bank. So, management identifies, assesses, measures and manages all kind of risks that act as a
hurdle to the bank’s strategic goals. For hunting the shareholder returns, bank focuses to
balance the performance, growth and risk
Assume that you have been working in the accounts department of this bank since 2010, now
you have been given some extra power to act as the member of the management and participate
in management’s decision. Now it is your responsibility:
• To remover errors and mistakes of financial statements before presenting them to your
share holders, in order to reflect true financial position of a bank and keep their
satisfaction level high.
• To take into account all kinds of risks and try to reduce them.
Given below are the un-organized and un-arranged accounts of the bank, you have to prepare
balance sheet of the bank by calculating total asset, total liability and net asset.
ITEMS 2014 (Rs)
Cash and balances with treasury banks 8,645,550
Borrowings from financial institutions 25,377,500
Lending’s to financial institutions 8,798,830
Sub‐ordinated loan 2,649,100
Balances with other banks 1,569,440
Bills payable 8,569,600
Advances – net 200,532,700
Checkable deposits 234,375,000
After preparing the balance sheet, keeping in view that it is mandatory for the bank to maintain
reserves 10% of its checkable deposits.
Answer the following questions:
1. Calculate the level of AKS bank’s capital.
2. Mr. Sheraz and Mr. Yasir are the two checking accounts holders; withdraw Rs. 25000
each from their accounts. What will be the effect of these transactions on bank’s assets
3. Does AKS bank face an immediate problem as cause of these two transactions? If yes,
identify the problem and what can bank do to overcome that problem?
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Balance Sheet of Commercial Bank
Commercial bank's balance sheet has two main sides i.e. the liabilities and the assets. From the study of the balance sheet of a bank we come to know about a system which a bank has followed for raising funds and allocation of these funds in different asset categories. Bank can have others money with it. It can be in terms of shareholders share capita, or depositors deposits. This money is the bank's liabilities. On the other hand bank's own sources of income leads to generation of assets for bank.
Balance Sheet of a Commercial Bank
a. Share Capital a. i. Cash in Hand
b. Reserve Funds ii. Cash with the Central Bank (RBI)
c. Deposits iii. Cash with the other banks
i. Fixed Deposits b. Money at short
ii. Saving Deposits c. Bills and securities discounted
iii.Current Deposits d. Investment of bank
iv. Other Deposits e. Loans and Advances given
d. Borrowings f. Other Assets
e. Other liabilities
Bank's liabilities constitute five major items. The share capital, the contribution which shareholders have contributed for starting the bank. Reserve funds are the money, which the bank has accumulated over the years from its undistributed profits. Deposits are the money owned by customers and therefore it is a liability of a bank. There can be various kinds of deposits and recurring deposits. Apart from these items a bank can borrow from central and other commercial banks. These borrowings are also treated as bank's liabilities.
Bank's assets comprises cash, money at short notice, bills and securities discounted, bank's investments, loans sanctioned by the bank, etc. Bank's cash in hand, cash with other banks and cash with central bank (RBI) are its assets. When a bank makes money available at short notice to other banks and financial institutions for a very short period of 1-14 days it is also treated as bank's asset. Apart from these items bank always make money available to people on the form of loans and advances. They are also become bank's assets.
Balance Sheet of Bank
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