Banks and Other Financial Institutions - Speech or Presentation Example

Problem The following three one-year "discount loans are available to you:  Loan A: $120,000 at a 7% discount rate Loan B: $110,000 at a 6% discount rateLoan C: $130,000 at a 6.5% discount ratea. determine the dollar amount of interest you would pay on each loan and indicate the amount of net proceeds each loan would provide. Which loan would provide you with the most upfront money when the loan takes place?b. Calculate the percent interest rate or effective cost of each loan. Which one has the lowest cost?

a, amount of interest for Loan A is $ 8,400interest = 120,000 x 7% = 8,400net proceed of loanA = 120,000 minus 8,400 = $ 111,600amount of interest for Loan B is $ 6600interest = 110,000 x 6% = $ 6,600net proceed of loanB = 110,000 minus 6,600 = $ 103,400Amount of interest for Loan C is $ 8,450 interest = 130,000 x 6.5% = $ 8,450net proceed of loanC = 130,000 minus 8,450 = $ 121,550Loan C provides the largest net proceed of $ 121,550b, Effective rate of Loan A is 7.53% , computed as follows 8400 divided by 111600 x 100Effective rate of Loan B is 6.

38% , computed as follows 6,600 divided by 103400 x 100 Effective rate of Loan C is 6.95% , computed as follows 8,450 divided by 121550 x 100 Loan B has lowest cost at 6.38%.Problem 2. ATM Banc has the following liabilities and equity categories:deposits $9 millionother liabilities $4 millionowners capital ?total liabilities ?a. what would be the banks total liabilities and capital if owners capital were half the size of other liabilities? b. if total liabilities and capital were $15.5 million, what would be the amount of the owners capital?c. if total liabilities and capital were $14 million, and $1 million of deposits were withdrawn from the bank, what would be the amount of the owners capital?a. What would be the bank’s total liabilities and capital if owners’ capital were half the size of other liabilities?

Deposits – 9 millionOther Liabilities – 4 millionOwners’ Capital   - 2 millionTOTAL LIABILITIES AND CAPITAL = 15 Million  b. If total liabilities and capital were   $15.5 million, what would be the amount of the owners’ capital?Deposits – 9 millionOther Liabilities – 4 millionOWNERS CAPITAL – 2.5 millionTotal Liabilities and Capital – 15. 5 Million  c. If the total liabilities and capital were $14 million, and $1 million of deposits were withdrawn from the bank, what would be the amount of the owners’ capital?

Deposits – 9 million – 1 million = 8 millionOther liabilities = 4 millionOWNERS CAPITAL – 2 MillionTotal Liabilities and Capital – 14 millionPROBLEM 3Rearrange the following accounts to construct a bank balance sheet for second national bank. What are the total amounts that make the banks balance sheet balance?demand deposits: $20 million government series owned: $7 millioncash assets: $5 million bank fixed assets: $14 millionloans secured by real estate: $30 million time and savings deposits: $40 millioncommercial & industrial loans: $18 million federal funds purchased: $6 millionowners capital: $6 million other long-term liabilities: $2 million3 .

Second National BankBalance Sheet as of _____date(figures in million$)Assets:Cash assets: 5Government Securities owned: 7Loan secured by real estate: 30Commercial industrial loans : 18Bank fixed assets: 14Total Assets 74Liabilities Federal funds purchased: 6Demand deposits : 20Time and saving depos: 40Other long term liabilities: 2Owners capital: 6Total Liabilities and Equity 74Problem 4.A new bank has vault cash of $1 million and $5 million in deposits held at its federal reserve district bank.a. if the required reserves ratio is 8%, what dollar amount of deposits can the bank have?b. if the bank holds $65 million in deposits and currently holds bank reserves such that excess reserves are zero, what required reserves ratio is implied? a. If the required reserves ratio is 8 percent, what dollar amount of deposits can the bank have = 6*8% = 0.

48million answerb. If the bank holds $65 million in deposits and currently holds bank reserves such that excess reserves are zero, what required reserves ratio is implied = 6/65x100= 9.23% Problem 5. A bank has $10 million in vault cash and $110 million in deposits. If total bank reserves were $15 million with $2 million consider to be excess reserves, what required reserves ratio is implied? reserve ratio = 2/15 x 100 = 13.33 %Problem #6.The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank.

The required reserves ratio is 12 percent.a. if the bank has $600 million in deposits, what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio? b. if the bank holds $10 million in value cash, determine the required reserves ratio that would be needed for the bank to avoid a reserves deficit. c. if the Friendly National Bank experiences a required reserves deficit, what actions can it take to be in compliance with the existing required reserves ratios?a) From Required reserve ratio,Required reserve ratio = Required reserves / Deposits0.

12 = Required reserves / $600,000,000Required reserves = $72,000,000But we know that,Reserve deficit = Total reserves - required reserves= $50,000,000 - $72,000,000= $22,000,000Therefore, there is a deficit of $22,000,000 in the bank reserves which the bank has to cover. The amount of vault cash is $22,000,000b) Here the vault cash is $10,000,000 which is the reserve requirement. Computing the required reserve ratio:                 Required reserve ratio = Required reserves / Deposits                                                  = $10,000,000 / $600,000,000                                                 = 0.0167 or 1.67% c.

sell some of its loans to another bank, sell assets, take a loan from another bank. PROBLEM 7My current bank is Citi Bank and its website is online.citibank.com/US/ and another financial institution that I have picked is insurance company American International Group (AIG) and its website is www.aigcorporate.com. The services that this bank offers is Banking, Credit cards, Lending, Investing, Business, Rewards and Offers and other services. The main service of the bank is to accept deposits of the customers and make investments from them in order to earn profit.

It also has savings accounts and pays interest on these accounts.The bank also provides credit card services at different rates to different customer needs. Additionally the Citi bank also gives out loans to customers who want to invest the money in something and earns interest on them.Moreover the services also include investing the money in different mutual funds and other securities and different stocks, corporate financing is available for companies, leasing and different saving schemes are also provided.

The insurance company AIG’s main services include General Insurance which include insurance for fire, marine, motor vehicles and miscellaneous things. They also provide health insurance, claim payments. The bank and insurance company are similar in the form that both provide customer benefits in terms of securing their money where banks can be used for saving money while the insurance company can be used to make health treatments secured, property and other valuable items secured through insurance.

Both types of financial institution are also huge benefit to the economy as the world economy relies heavily on these institutions. Both firms differ in terms of the different types of services that they offer such as banks can be used for saving money and then earning interest on them whereas in a financial institution lease payments are made to insure something. Financial institutions of today are huge and are everywhere and the world economy cannot survive without them as most of the money is given out through them and the business rely on these firms hugely.

The savings and loans crisis could have been avoided if there was not overregulation in the industry by the government. The high regulation prevented different firms from experimenting with different ways to adapt to changing market trends.Neither owners nor depositors had anything to lose, and both groups encouraged escalating risk-taking as a result. The disaster could have been avoided if there was more consideration on the part of the owners of these institutions.