FIN 366 Financial
Institutions
Complete Course
WEEK 1 to 5
FIN 366 WEEK 1
Discussion
Question # 1
1. What is the
primary goal of a commercial bank? Why may this goal be translated into
maximizing the firm's stock share price?
2. Why are demand
deposits a more important source of funds for small banks than for large banks?
Why are demand deposits considered to be a more stable source of funds for
small banks than for large banks?
3. What are
borrowed funds? Give some specific examples. Have borrowed funds become more or
less important as a source of funds for banks?
4. Explain why
banks buy and sell federal funds. Also explain the role of the Federal Reserve
System in the fed funds market. Show the T-accounts for a federal funds
transaction.
5. Throughout
this chapter, the role of insurance companies and pension funds as financial
intermediaries was stressed. Discuss the financial intermediation process as it
applies to insurance companies and pension funds.
6. What is the
difference between pure risk and speculative risk? Provide an example of each
of these types of risk.
7. Explain how
investment banks and large money-center banks are similar and how they are
different.
Discussion
Question # 2
1. What are the
major uses of funds for a bank? What are the differences between large and
small banks? Explain.
2. What are the
important differences between investments and loans in a bank portfolio of
assets?
3. Distinguish
between a line of credit and a letter of credit.
4. Define
correspondent banking. Why do banks enter into correspondent relationships?
5. Term insurance
becomes cost prohibitive for elder individuals. However, the same insurance
companies that do not offer term policies at advanced ages sell whole life
insurance. How are these insurers able to offer life insurance for all of life
under whole life insurance but not under term insurance?
6. How are Social
Security old-age benefits funded? What is the age for full retirement benefits
for those retiring under Social Security today? What is the age under current
law for full retirement benefits when someone who is 20 years old today
retires?
7. Assume a venture capitalist requires a 40 percent
rate of return per year. If the venture capitalist thinks that a company will
be worth $50 million in 5 years, what percentage of ownership in the company
will the venture capitalist require today in exchange for a $3 million
investment?
Assignment
(Individual) - Individual Reflections
Paper
FIN 366 WEEK 2
Discussion
Question # 1
1. Explain why
the banking system was so unstable prior to establishment of the Fed in 1914.
2. What is a
“call loan” and how did call loans contribute to economic recessions?
3. Explain why
the Board of Governors of the Federal Reserve System is considered so powerful.
What are its major powers and which is the most important?
4. Explain the
concepts of frictional unemployment, structural unemployment, and the natural
rate of unemployment. How do these affect what is considered full employment?
5. Why are bank
failures considered to have a greater impact upon the economy than other types
of business failures? Do you agree with
this conclusion?
6. What are the
major lessons that have been learned from past bank failures? Do you think that history can or will repeat
itself?
7. What is the
purpose of bank examinations? How do
they differ from that of a CPA audit?
Discussion
Question # 2
1. Explain why
the FOMC is the key policy group within the Fed.
2. A bank has
$3,000 in reserves, $9,000 in bank loans, and $12,000 of deposits. If the reserve requirement is 20% what is the
bank’s reserve position? What is the
maximum dollar amount of loans the bank could make? What would happen to the nation’s money
supply if the Fed lowered the reserve requirement to 10 percent? Demonstrate your results with numerical
examples and T-accounts.
Assuming reserve requirements apply to
all the bank’s deposits, its $3,000 of reserves comprise required reserves of
$2,400 (20% of total deposits of $12,000) and excess reserves of $600 (total
reserves of $3,000 less required reserves of $2,400):
3. Explain how
the Fed changes the money supply with an open market purchase of Treasury
securities.
4. What are some
of the potential conflicts between goals of monetary policy? Explain.
5. Bank
regulation is considered to be in the public interest. Thus, the more regulation the better. Explain why you agree or disagree with this
statement.
6. How do failing
bank resolution policies differ between large and small banks? Why the difference?
7. How can an
effective lender of last resort prevent financial panics from developing? Why was the Fed unable to prevent the great
depression of the 1930's?
Assignment
(Individual) - The Role of Financial
Institutions in Financial Markets Paper
FIN 366 WEEK 3
Discussion
Question # 1
1. What are the major business activities of investment
banks?
2. Why do commercial banks want to get into investment
banking?
3. Explain why underwriting new securities issues can be
a risky business.
4. What is a private placement? How does it differ from a deal underwritten
by an investment bank?
5. In what ways do some security dealers and
stockbrokers serve as financial intermediaries?
6. What is venture capital? What types of companies seek venture capital?
7. What are the differences between M1, M2, and MZM? Why
are there different measures of money?
Discussion
Question # 2
1. What is the
essential difference between the Keynesian and the Monetarist view of how money
affects the economy?
2. What are
technical factors? How do they affect the implementation of monetary policy?
3. According to
the law of large numbers, as the number of insureds increases, risk is
reduced. However, as an insurance
company writes more policies, it exposes itself to the potential for greater
insured losses, which is riskier.
Explain this apparent contradiction.
4. To what extent
do (1) the risk of unemployment and (2) the risk of war satisfy the
requirements of private insurance risks?
5. What are the
primary sources of insurance regulation?
What are the areas that are regulated?
6. Why are
annuities and life insurance often described as opposites? If they are opposites, why do insurance
companies marketing life insurance also commonly market life annuities?
7. Differentiate
between defined benefit and defined contribution pension plans. Who bears the investment risk under each of
these alternatives? Which type of plan
is easier to fund and manage?
Assignment
(Individual) - Federal Reserve Paper
Assignment
(Team) - Financial Characteristics
Paper
FIN 366 WEEK 4
Discussion
Question # 1
1. What are the characteristics of money market
instruments? Why must a financial claim
possess these characteristics to function as a money market instrument?
2. What types of
firms issue commercial paper? What are
the characteristics critical to being able to issue commercial paper?
3. If a bond dealer bought a $100,000 municipal bond at
90% of par and sold it at 93% of par, how much money did the dealer make on the
bid-ask spread?
4. Explain how
securities are brought to market under (a) a competitive sale and (b) a
negotiated sale. How do the two methods
of sale differ?
5. Define the
following terms as they relate to secondary markets: depth, breadth, and resiliency.
6. Briefly
describe the role of the NYSE specialists.
How does this role differ from that of a dealer?
7. Lance Garrison
and Jennifer Stock have both decided to buy 100 shares of WWW.COM, a hot
Internet stock. The market price is $240
per share when Lance places a market order and Jennifer places a limit order at
$230 per share. One week later, the
price of WWW.com is $305 per share after having increased steadily since Lance
and Jennifer placed their orders. How
much profit has Lance made? How much
profit has Jennifer made?
Discussion
Question # 2
1. Explain how
repurchase agreement transactions provide short-term investments to
businesses. In what sense is a repo a
collateralized loan?
2. If a trust is
established to securitize $100 million in auto loans that paid 13% interest and
the average rate paid on the tranches issued was 10%, whereas financial
guarantees to protect against default on the loans cost 1.5%, how much money
would the creator of the trust have available to pay for loan servicing and
profits if the financial guarantee was purchased?
3. What features
make municipal bonds attractive to certain groups of investors? Why do other investors not want to hold
municipal securities?
4. Describe the
different forms of financial guarantees seen in the bond market.
5. Describe the
major differences between common stock and preferred stock.
6. List and
explain the factors affecting underwriter spreads.
7. Explain the
difference between systematic and unsystematic risk. Explain how beta captures systematic risk.
Assignment
(Individual) - Financial Transaction
Risks
FIN 366 WEEK 5
Assignment
(Individual) - Global Financial
Stability Paper
Assignment
(Team) - Market Participation Paper
Assignment
(Team) Presentation - Market
Participation Paper
Final
Exam - Solution
