Refer to Table 13-20, Table 13-21. Table 13-23 and Table 13-24. Two depository Institutions have composite CAMELS ratings of 1 or 2 and are "well capitalized." Thus, each institution falls into the FDIC Risk Category I deposit Insurance assessment scheme. Weights for the CAMELS components to calculate the weighted average CAMELS rating are 25 percent, 20 percent, 25 percent, 10 percent, 10 percent, and 10 percent for the C, A, M, E, L, and S components, respectively. Further, the institutions have the following financial ratios and CAMELS ratings: Institution A Institution 8 Financial Ratios: Leverage Ratio. 8.70 7.83 Nonperforming Loans and Leases/Gross 0.43 Assets 0.58 Other Real Estate Owned/Gross Assets 0.80 0.82 Net Income Before Taxes/Total Assets 2.23 2.05 Brokered Deposit Ratio 2.25 2.55 One-Year Asset Growth 6.80 6.15 Loans as a Percent of Total Assets: Construction & Development Commercial & Industrial Leases Other Consumer Loans to Foreign Government Real Estate Loans Residual Multifamily Residential Nonfarm Nonresidential 0.45 0.38 14.36 13.80 1.55 0.65 18.35 18.05 0.40 0.20 0.00 0.00 0.90 0.85 0.00 0.00 1-4 Family Residential 39.48 36.05 Loans to Depository Banks 1.20 1.60 Agricultural Real Estate 2.55) 4.00 Agriculture 4.20 3.20 CAMELS components: 1 3 3 3 2 2 Calculate the initial deposit insurance assessment rate for each institution (Do not round Intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.161)) Initial assessment rate Institution A Institution B

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All of the following are purposes of internal risk rating systems except: Group of answer choices D. Pricing and trading of loans. B. Setting of limits and acceptance or rejection of new transactions. C. Inadequacy of loan reserves. A. Monitoring of credit quality.

Bonds are like loans the issuers get from investors. Just as your credit worthiness is evaluated when you apply for a loan, the credit worthiness of the bond also needs to be evaluated. To do this, independent agencies have created a rating system. To help investors evaluate bonds, private rating agencies such as Moody’s and Standard & Poor’s assign grades to designate a bond’s quality. Which of the following statements regarding the rating system are correct? Check all that apply. Once a bond receives a rating, it cannot be changed.   A bond rated Ba by Moody’s is comparable to a bond rated BB by Standard & Poor’s.   Different rating systems are used for corporate versus municipal bonds.   The average yields on Aaa bonds are generally lower than the average yields on Baa bonds.   The rating C signifies a lower risk of default than a B rating.     The following chart shows the distribution of Moody’s ratings for municipal bonds between 1970 and…

Critically discuss five ways in which banks and/or bond holders can manage the credit risk of the loans or bonds they hold as investment assets.

Consider the relative liquidity of the following assets: Assets 1. A bond issued by a publicly traded company 2. The funds in a money market account 3. A $20 bill 4. Your truck Select the assets in order o Most Liquid Second-Most Liquid Third-Most Liquid Least Liquid Bond 520.00 bill Truck Funds held in a money market account quid.

In your own words and using various bond websites, locate one of each of the following bond ratings: AAA, BBB, CCC, and D. Describe the differences between the bond ratings. Identify the strengths and weaknesses of each rating.

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