Why is it that oftentimes banks refuse to lend to many borrowers even though they offer high interest rates? To reduce the exposure to diversification risk. O To reduce the exposure to interest rate risk. To reduce the exposure to credit risk. To reduce transactions costs To reduce the free-rider problem.
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- What are the major flaws with NPV? What are the major flaws with IRR? If you are going to a bank and trying to get a loan, which is the best method to use (NPV, IRR, Payback period)?Show that the Ricardian Equivalence does not necessarily hold if the assumption of perfect credit markets is violated which means the consumers can be liquidity constrained (e.g. due to transaction cost). More precisely, demonstrate the problem in a situation when the interest rate depends on whether the household lends or borrows in the first period. Lenders get an interest rate is rL, while borrowers face an interest rate rB, with rB > rL. Government can also borrow at the lower interest rate.We think of banks as being interest rate intermediaries. That is, the borrow cheaply, and then lend at higher rates, and the spread between those is their profit. But, besides interest rates, what other sorts of risks do banks face?
- Why do you think banks are willing to offer savers higher rates of return if they agree to less flexibility in accessing their savings?What risks might commercial banks face if they use short-term deposits from savers to pay for long-term loans, like mortgages, that often have fixed interest rates? What could the financial institution do to lower these risks?Which explanation BEST describes John Maynard Keynes' "The Paradox of Thrift?" a. Individuals should reduce spending to cut debt. b. When an individual reduces her or his own spending, he or she reduces someone else's revenue. C. Individuals should borrow money during uncertain economic times. d. Individuals should only borrow money when times are good.
- Securitisation of loans results in banks: 1. Transferring the credit risk of loans from their balance sheet to other financial institutions. II. Reducing due diligence in the loan appraisal process. III. Increasing the monitoring of these loans. IV. Freeing up capital so that they can bypass capital requirements. O Only II is true. O I, II and IV are true. O Only I and II are true. O Only I is true. O Only III is true.what is ADVANTAGES AND DISADVANTAGES OF THIS MORATORIUM FOR THE BANKS AND BORROWERS? provide EXAMPLES.A bank that grants loans to firms in a many different lines of business: will increase its information cost and decrease its credit risk will increase both its information cost and its credit risk will decrease its information cost and decerase its credit risk will decrease its information costs and increase its credit risk
- Its difficult for payments bank to survive in long run ?A bank wants to implement a loan pricing model and has to look at several variables to consider. Please select the variable that is incorrectly described. a. A profit margin to provide the bank with an adequate return on capital. b. Risk premium to counter the effect of default risk. c. Cost of funding that include the cost of bonds issued. d. Operating costs that include the cost of interest paid to depositors.Moral hazard or its reduction explain the following except: O A. Collateral requirements for loans. O B. The Enron and Tyco scandals. O C. The success of zero commission trading. O D. Covenants requiring borrowers to provide information periodically.