商業(yè)銀行管理ROSE7e課后答案chapter-

商業(yè)銀行管理ROSE7e課后答案chapter_

CHAPTER10

THEINVESTMENTFUNCTIONINBANKINGANDFINANCIALSERVICESMANAGEMENT

GoalofThisChapter:Thepurposeofthischapteristodiscoverthetypesofsecuritiesthatfinancialinstitutionsacquirefortheirinvestmentportfolioandtoexplorethefactorsthatamanagershouldconsiderindeterminingwhatsecuritiesafinancialinstitutionshouldbuyorsell.

KeyTopicsinThisChapter

NatureandFunctionsofInvestments

InvestmentSecuritiesAvailable:AdvantagesandDisadvantages

MeasuringExpectedReturns

Taxes,Credit,andInterestRateRisks

Liquidity,Prepayment,andOtherRisks

InvestmentMaturityStrategies

MaturityManagementTools

ChapterOutline

I.Introduction:TheRolesPerformedbyInvestmentSecuritiesinBankPortfolios

II.InvestmentInstrumentsAvailabletoBanksandOtherFinancialFirms

III.PopularMoney-MarketInstruments

A.TreasuryBills

B.Short-TermTreasuryNotesandBonds

C.FederalAgencySecurities

D.CertificatesofDeposit

E.InternationalEurocurrencyDeposits

F.Bankers'Acceptances

G.CommercialPaper

H.Short-TermMunicipalObligations

IV.PopularCapitalMarketInstruments

A.TreasuryNotesandBonds

B.MunicipalNotesandBonds

C.CorporateNotesandBonds

III.OtherInvestmentInstrumentsDevelopedMoreRecently

A.StructuredNotes

B.SecuritizedAssets

C.StrippedSecurities

IV.InvestmentSecuritiesActuallyHeldbyBanks

V.FactorsAffectingtheChoiceofInvestmentSecurities

A.ExpectedRateofReturn

B.TaxExposure

1.TheTaxStatusofStateandLocalGovernmentBonds

2.BankQualifiedBonds

3.TaxSwappingTool

4.ThePortfolioShiftingTool

C.Interest-RateRisk

D.CreditorDefaultRisk

E.BusinessRisk

F.LiquidityRisk

G.CallRisk

H.PrepaymentRisk

I.InflationRisk

J.PledgingRequirements

VI.InvestmentMaturityStrategies

A.TheLadderorSpaced-MaturityPolicy

B.TheFront-EndLoadMaturityPolicy

C.TheBack-EndLoadMaturityPolicy

D.TheBarbellStrategy

E.TheRateExpectationsApproach

VII.MaturityManagementTools

A.TheYieldCurve

B.Duration

VIII.SummaryoftheChapter

ConceptChecks

10-1.Whydobanksandinstitutionschoosetodevoteasignificantportionoftheirassetstoinvestmentsecurities?

Investmentsperformmanydifferentrolesthatactasanecessarycomplementtotheadvantagesloansprovide.Investmentsgenerallyhavelesscreditriskthanloans,allowthebankorthriftinstitutiontodiversifyintodifferentlocalitiesthanmostofitsloanspermit,provideadditionalliquidreservesincasemorecashisneeded,providecollateralascalledforbylawandregulationtobackgovernmentdeposits,helptostabilizebankincomeoverthebusinesscycle,andaidbanksinreducingtheirexposuretotaxes.

10-2.Whatkeyrolesdoinvestmentsplayinthemanagementofabankorotherdepositoryinstitution?

Seeanswerto10-1

10-3.Whataretheprincipalmoneymarketandcapitalmarketinstrumentsavailabletoinstitutionstoday?Whataretheirmostimportantcharacteristics?

Bankspurchaseawiderangeofinvestmentsecurities.TheprincipalmoneymarketinstrumentsavailabletobankstodayareTreasurybills,federalagencysecurities,CD'sissuedbyotherdepositoryinstitutions,Eurodollardeposits,bankers'acceptances,commercialpaper,andshort-termmunicipalobligations.Thecommoncharacteristicsofmosttheseinstrumentsistheirsafetyandhighmarketability.CapitalmarketinstrumentsavailabletobanksincludeTreasurynotesandbonds,stateandlocalgovernmentnotesandbonds,mortgage-backedsecurities,andcorporatenotesandbonds.Thecharacteristicsofthesesecuritiesistheirlongrunincomepotential.

10-4.Whattypesofinvestmentsecuritiesdobankspreferthemost?Canyouexplainwhy?

Commercialbanksclearlypreferthesemajortypesofinvestmentsecurities:UnitedStatesTreasurysecurities,federalagencysecurities,andstateandlocalgovernment(municipal)bondsandnotes.Theyholdsmallamountsofequitiesandotherdebtsecurities(mainlycorporatenotesandbonds).Theypickthesetypesbecausetheyarebestsuitedtomeettheobjectivesofabanksinvestmentportfolio,suchastaxsheltering,reducingoverallriskexposure,asourceofliquidityandnaturallygeneratingincomeaswellasdiversifyingtheirassets.

10-5.Whataresecuritizedassets?Whyhavetheygrownsorapidlyinrecentyears?

Securitizedassetsareloansthatareplacedinapooland,astheloansgenerateinterestandprincipalincome,thatincomeispassedontotheholdersofsecuritiesrepresentinganinterestintheloanpool.Theseloan-backedsecuritiesareattractivetomanybanksbecauseoftheirhigheryieldsandfrequentfederalguarantees(inthecase,forexample,ofmosthome-mortgage-backedsecurities)aswellastheirrelativelyhighliquidityandmarketability

10-6.Whatspecialrisksdosecuritizedassetspresenttoinstitutionsinvestinginthem?

Securitizedassetsoftencarrysubstantialinterest-rateriskandprepaymentrisk,whichariseswhencertainloansinthesecuritized-assetpoolarepaidoffearlybytheborrowers(usuallybecauseinterestrateshavefallenandnewloanscanbesubstitutedfortheoldloansatcheaperloanrates)oraredefaulted.Prepaymentriskcansignificantlydecreasethevaluesofsecuritiesbackedbyloansandchangetheireffectivematurities.

10-7.Whatarestructurednotesandstrippedsecurities?Whatunusualfeaturesdotheycontain?

Structurednotesusuallyarepackagedinvestmentsassembledbysecuritydealersthatoffercustomersflexibleyieldsinordertoprotecttheircustomers'investmentsagainstlossesduetoinflationandchanginginterestrates.Moststructurednotesarebasedupongovernmentorfederalagencysecurities.

Strippedsecuritiesconsistofeitherprincipalpaymentsorinterestpaymentsfromadebtsecurity.TheexpectedcashflowfromaTreasurybondormortgage-backedsecurityisseparatedintoastreamofprincipalpaymentsandastreamofinterestpayments,eachofwhichmaybesoldasaseparatesecuritymaturingonthedaythepaymentisdue.Someofthesestrippedpaymentsarehighlysensitivetochangesininterestrates.

10-8.Howistheexpectedyieldonmostbondsdetermined?

Formostbonds,thisrequiresthecalculationoftheyieldtomaturity(YTM)ifthebondistobeheldtomaturityortheplannedholdingperiodyield(HPY)betweenpointofpurchaseandpointofsale.YTMistheexpectedrateofreturnonabondhelduntilitsmaturitydateisreached,basedonthebond'spurchaseprice,promisedinterestpayments,and

redemptionvalueatmaturity.HPYisarateofdiscountbringingthecurrentpriceofabondinlinewithitsstreamofexpectedcashinflowsanditsexpectedsalepriceattheendofthebank'sholdingperiod.

10-9.Ifagovernmentbondisexpectedtomatureintwoyearsandhasacurrentpriceof$950,whatisthebond'sYTMifithasaparvalueof$1,000andapromisedcouponrateof10percent?Supposethisbondissoldoneyearafterpurchaseforapriceof$970.Whatwouldthisinvestor'sholdingperiodyieldbe?

Therelevantformulais:

$950=221YTM)1(1000$YTM)(1$100YTM)1(100$+++++

Usingafinancialcalculatorweget:

YTM=12.99%

Ifthebondissoldafteroneyear,theformulaentrieschangeto:

$950=1

1YTM)(1$970YTM)1(100$+++

andtheYTMis:

YTM=12.63%

10-10.W