Mgt411 GDB solution
Saturday, June 11, 2011 Posted In MGT Edit ThisAccording to my point of view, it will be a Interest rate risk. Inflation rate risk applies only to bonds and it is not for the banks. So, Anyone agree with my statement due to the following reasons: -
1. S&K Saving Bank has issued saving certificate (certificate of deposits) for Rs. 1,000 with one year maturity at 4% interest rate.In next year bank will reissue the certificate of deposits;
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Type of risk: Interest rate risk
Reasons:
• The bank has invested the in treasury bonds for two years maturity at fix interest rate so return will be certain and there will be no profit or loss situation.
• The bank will reissue the certificate of deposits by which it will be able to pay for the certificates of deposits issued in first year reducing the liquidity issue. Inflation will also play some role and next year the interest rate will also rise.
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Question
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Semester “Spring 2011”
1. S&K Saving Bank has issued saving certificate (certificate of deposits) for Rs. 1,000 with one year maturity at 4% interest rate.In next year bank will reissue the certificate of deposits;
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Type of risk: Interest rate risk
Reasons:
• The bank has invested the in treasury bonds for two years maturity at fix interest rate so return will be certain and there will be no profit or loss situation.
• The bank will reissue the certificate of deposits by which it will be able to pay for the certificates of deposits issued in first year reducing the liquidity issue. Inflation will also play some role and next year the interest rate will also rise.
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Question
Money Aggregate or money supply plays a crucial role in any economy, which not only counts the money supply at specific time period but also useful in taking different economic decisions. Definitions of different money aggregate are somehow loosely defined but all the economists differentiate and classify M1, M2 & M3 on the single accepted base.
Give answer in keywords only:
Q#1.What is the main characteristic that distinguishes the different money
aggregate definitions?
Solution:
The main characteristic that distinguishes the different money aggregate definitions is Liquidity.
2. Which money aggregate definition is mostly used in economic decision around the world?
Solution:
M2 is used in economic decisions.
3. Justify answer given against part-b. (Provide only one reason)
Solution:
Economists use M2 when they want to quantify the amount of money in circulation and try to explain different economic monetary conditions. M2 is a key economic indicator used to forecast inflation.
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Semester “Spring 2011”
“Money & Banking (MGT411)”
This is to inform that Graded Discussion Board (GDB) Has been opened according to the following schedule
Schedule
Date opening and Time
June 09, 2011 At 12:01 A.M. (Mid-Night)
Date closing and Time
June 13, 2011 At 11:59 P.M. (Mid-Night)
Note: No extra or bonus/grace period is available for attempting GBD.
Discussion Question
S&K Saving Bank is a medium size bank and operating locally. It provides different financial services to individuals and businesses. In January 2011, S&K Saving Bank has issued saving certificate (certificate of deposits) for Rs. 1,000 with one year maturity at 4% interest rate. In next year bank will reissue the certificate of deposits; on reissuance interest rate on these may vary due to change in inflation rate and monitory policy. With the borrowed money the bank has purchased treasury bonds for Rs 1000 at 8% fixed interest having two year maturity. Previous trend shows that interest rate may rise by 1-2 percent. Required: Keeping in view all these information, what type of risk the bank will face while entering into these transactions? Also mention the valid reason for choosing this type of risk. Hint: Write your answer in the following format.Question Comments Type of risk: (Give only name) ? Specify the reason for choosing this risk in Bullets/ Numbers form ?
Instructions Read the following instructions before giving your comments on GDB:
Ø Write down only keywords. Your answer should not exceed 25 words (negative impact will be logical if the student violate the words restriction).
No need to mentions the question. Only specific answer is required.
No need to mentions the question. Only specific answer is required.
1. Use the font style “Times New Roman” and font size “12”. 2. Your answer should be relevant to the topic i.e. clear and concise. 3. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course. 4. Books, websites and other reading material may be consulted before posting your comments but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0).5. Obnoxious or ignoble answer should be strictly avoided.
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