Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 22, Problem 10CQ
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Which of the following is not a way in which banks lend short-term unsecured loans?
a. Through a guaranteed credit line that has a commitment fee for any unused amount for the year
b. Through credits cards lines with a certain credit limit
c. By sending the amount earned from trust and investment products offered by the bank
d. By lending a single date maturity loan to a debtor
If the national debt increases, is it true that we need not worry about the debt as long as the country is able to make payments on the debt? State why or why not. Explain your answer clearly.
A commercial bank in Barbados faces serious liquidity problems; however, they have an asset that has the required value to meet their debt obligations. However, due to poor economic conditions, they may not get a buyer in time to purchase such an asset at their preferred price, so they may end up losing money for selling that asset lower than their preferred price, or if they choose not to sell the asset, they will not be able to meet their financial obligation. Which of the following strategy is best suited to manage the bank’s liquidity risk?
Select one:
a.
Interest rate swaps
b.
Stress Tests
c.
Diversifying
d.
Hedging
Chapter 22 Solutions
Corporate Finance
Ch. 22 - Options What is a call option? A put option? Under...Ch. 22 - Options Complete the following sentence for each...Ch. 22 - American and European Options What is the...Ch. 22 - Intrinsic Value What is the intrinsic value of a...Ch. 22 - Option Pricing You notice that shares of stock in...Ch. 22 - Options and Stock Risk If the risk of a stock...Ch. 22 - Option Risk True or false: The unsystematic risk...Ch. 22 - Prob. 8CQCh. 22 - Option Price and Interest Rates Suppose the...Ch. 22 - Contingent Liabilities When you take out an...
Ch. 22 - Options and Expiration Dates What is the impact of...Ch. 22 - Options and Stock Price Volatility What is the...Ch. 22 - Insurance as an Option An insurance policy is...Ch. 22 - Equity as a Call Option It is said that the equity...Ch. 22 - Prob. 15CQCh. 22 - Put Call Parity You find a put and a call with the...Ch. 22 - Put- Call Parity A put and a call have the same...Ch. 22 - Put- Call Parity One thing put-call parity tells...Ch. 22 - Prob. 1MCCh. 22 - Prob. 2MCCh. 22 - Prob. 3MCCh. 22 - Prob. 4MCCh. 22 - Prob. 5MC
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Why do federally guaranteed loans usually have the least risk for banks, List some popular guaranteed loan programs.arrow_forwardWhich of the following is not a way in which banks lend short-term unsecured loans? Through credits cards lines with a certain credit limit Through a guaranteed credit line that has a commitment fee for any unused amount for the year By sending the amount earned from trust and investment products offered by the bank By lending a single date maturity loan to a debtorarrow_forwardWhich of the following is FALSE The APR is the annual rate that is required by law to be disclosed on loan documents. The EAR allows for comparison between savings accounts that have different compounding frequencies US treasury bills are considered pure discount loans the cash flows of preferred stock are considered an annuity. car loans are considered amortized loans because each payment includes interest and some principalarrow_forward
- Which of the following statements is (are) NOT directly related to moral hazard? 1. The use of loan tranches in the IMF/EU/ECB bail-outs for Greece, i.e. releasing the funds in installments contingent on progress Greece has made to meet the terms of the loan agreement. II. Trading desk bank employees taking on excessive risk to ensure lucrative bonuses while knowing that if the bank fails, it will be bailed out by the government. III. Riskier borrowers willing to accept very high interest rates. IV. Since fund managers are not fully responsible for the consequences of their investment decisions they have an incentive to take excessive risk. V. The seller of a used car not telling a buyer the car will soon need significant engine work, fearing that by disclosing this information would reduce the selling price of the car by a significant amount. II and V. OIV and V. OI and III. III and V. II and III.arrow_forwardThe refinancing rate is the interest rate a central bank like the Bank of England or European Central Bank (ECB) charges on short-term loans to the banking sector. Which of the following statements about the refinancing rate are true? Check all that apply. If the central bank wants to contract the monetary supply, it raises the refinancing rate. A lower refinancing rate discourages banks from borrowing reserves and making loans. O To meet their liquidity requirements, banks agree to repurchase assets put up as collateral for loans from the central bank. The refinancing rate is a primary barometer of central bank policy reported in the media.arrow_forwardIf the Fed buys loans from banks, what is the impact on the Loanable Funds Market? A) Decreases the supply of loanable funds and lowers the interest rate. B) Increases the supply of loanable funds and lowers the interest rate. C) Decreases the supply of loanable funds and raises the interest rate. D) Increases the supply of loanable funds and raises the interest rate.arrow_forward
- What was the main purpose of the Troubled Asset Relief Program (TARP)? A. Sell risky assets to foreign investors in exchange for cash to increase Fed capital B. Write off mortgage debt to provide relief to home owners C. Provide tax rebates to consumers in order to support spending D. Purchase risky assets from financial institutions in exchange for new capitalarrow_forwardc) In what three ways do commercial banks make a profit from the monetary system? (d) In Canada, what is the equivalent of the U.S. Federal Reserve? e) Suppose that the United States were to adopt a system of full-reserve banking; thatis, demand deposits would be illegal to lend out, and banks would only charge a nominalfee for safekeeping. Would this help to fix the problems that Mike Maloney layed out? Explain your answer.arrow_forwardImagine that you work for OstBank, a fictional European bank, as part of the team that manages repurchase agreements with the European Central Bank (ECB). If the ECB lowers the refinancing rate from 2% to 1%, OstBank will borrow from the ECB. To execute this change, OstBank could v the ECB. The result would be in OstBank's reserves, prompting OstBank to make loans. Because banks making loans lead to deposits, and deposits in the banking system are part of the money supply, a decrease in the ECB's refinancing rate will tend to the money supply in Europe.arrow_forward
- Banks with no foreign assets or liabilities are not exposed to foreign currency risk. True or False? Please explain. Thanks so much!arrow_forwardGovernments are prevented from borrowing unlimited funds through the enforcement of debt limits. Explain the concept of debt limits. How is the concept of borrowing power or debt margin connected to debt limit?arrow_forwardThe National Bank of Kazakhstan charges a discount interest rate on emergency loans to commercial banks. At one time, the National Bank set this interest rate beneath the base interest rate, which is the benchmark interest rate in Kazakhstan’s economy. But the National Bank now sets the discount rate equal to the base rate. Why might this have been prudent?arrow_forward
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