933N1 Bank Financial Management

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MSc EXAMINATION 2020/21

 

933N1 Bank Financial Management

 

Assessment Period: January 2021 A1

 

Duration: 24 hour Take-Away Paper

 

Candidates must attempt ALL questions

 

Each question carries 25 marks

 

Question 1.

Barcs Bank reports the following figures in its Balance Sheet in 2019:

 Assets  £ million  Liabilities and Equity  £ million
Cash and inter-bank deposits 51 Core deposits 486
Short-term security investments 14 Large negotiable CDs 102
Total loans, gross 568 Deposits placed by brokers 20
Long-term securities 62 Other wholesale liabilities 113
Other assets 77 Equity capital 51
Total assets  772 Total liabilities and Equity Capital  772

 

  1. Evaluate the funding mix of deposits and non-deposit sources of funds employed by Barcs.

[10 marks]

  1. Suppose that in the first half of 2020, due to the consequences of the Covid-19 outbreak, depositors had to withdraw their money at the bank, resulting in a reduction of £150 million in core deposits. The bank then decided to issue new large negotiable CDs to replace the outflows in core deposits. All other figures remain the same. Given the mix of its assets, critically discuss the bank’s action and suggest any relevant strategies where appropriate.

[15 marks]

 

Question 2.

Consider the following summarised balance sheet of FSB Bank Ltd:

 

Assets Amount Rate Liabilities and Equity Amount Rate
Rate sensitive 5,000 6% Rate sensitive 6,000 2%
Fixed rate 3,500 9% Fixed rate 2,200 4%
Nonearning 1,500   Non-paying liabilities and equity 1,800  
Total 10,000   Total 10,000  

Unit: Thousand GBP.

 

 

  1. Provide detailed definitions of rate-sensitive assets and rate-sensitive liabilities in GAP analysis. Give examples where appropriate.

[10 marks]

 

 

  1. Calculate the bank’s GAP. [2 marks]

 

 

  1. Calculate the bank’s Net Interest Income. [2 marks]

 

 

  1. Calculate the bank’s Net Interest Margin. [2 marks]

 

 

  1. Calculate the change in Net Interest Income and Net Interest Margin if there is a parallel shift in the yield curve of 1 percentage point higher during the year. Comment on your findings using the data and the implications of GAP analysis.

[9 marks]

 

Question 3.

Critically discuss the importance of bank performance, using the different objectives of different economic entities to support your discussion. Discuss the performance of UK banks in light of the current economic and health circumstances. Refer to the bank performance literature and use data to support your discussion where appropriate.

[25 marks]

 

Question 4.

Critically discuss the relationship between bank competition and financial stability. Use the related banking literature to support your discussion where appropriate.

[25 marks]

 

                                                END OF PAPER

 

 

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