finical and bank questions

1. a. Identify and briefly explain the three major tools that the Federal Reserve can use to implement monetary policy.

b. Identify which on of these tools is the most effective and why?

c. Indicate how the mechanism(s) described in part b. above be used to stimulate (expand or grow) or to contract (slow down) the economy?

2.Commercial Banks both issue (as liabilities) and invest in (as assets) different Money Market instruments.

a. Identify TWO of the money market instruments that are commonly used by Commercial Banks. For each instrument, indicate whether Commercial Banks issue them as liabilities or invest in them as assets.

b. What are the characteristics of these instruments that make them useful and attractive to Commercial Banks?

3. A woman is buying a house in which she expects to live for at least until her retirement twenty years from now. The house is appraised at $400,000 and she asks her Commercial Bank for a 30-year mortgage loan to finance $300,000.

The bankâ€s loan officer offers two types of mortgages. One is a fixed rate mortgage (FRM), the other is an adjustable rate mortgage (ARM). Each has a different interest rate that will be in effect at loan origination. The FRM has a higher rate but that rate will not change for the thirty years needed to fully amortize the mortgage. The ARM has a lower initial rate but it is subject to a change in rate.

a. The bank offers these two types of mortgages with different initial loan rates. What are the differences in risks to the bank that justify this?

b. Which choice do you think will be more attractive to this borrower â€“ and why

4.The five largest banks (Too Big to Fail) in the U.S. are very different from the more numerous but much smaller community banks.

a. Discuss two significant differences between them on their Balance Sheetand Income Statement.

b. Discuss why U.S. regulators and consumers should be concerned about the relative size of these five U.S. largest banks compared to community banks.

5.There are several ways to evaluate a Commercial Bankâ€s financial performance, risk profile, and financial strength. One approach that regulators use are bank examinations based on the CAMELS system, which evaluates Capital, Asset quality, Management strength, Earnings, Liquidity, and Sensitivity to Markets.

Select ONE of these six components and discuss an approach to measure and evaluate that component.

6. Choose one type of Bank regulation from the following list. Describe what is meant by that type of regulation and provide ONE examples of regulations that are in that type and why they are in that type.

A. Safety & Soundness
B. Monetary Policy
C. Credit Allocation
D. Consumer Protection
E. Entry & Chartering

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