Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both.
1) Select one factor that affects cash flows for a bank valuation. Why is this factor significant for banking operations?
2) Select one factor that affects the required rate of return for investors in commercial banks. Why is this factor significant for investors?
3) Differentiate interest income from noninterest income. Which, if any, is more significant for long-term health of banks (in your opinion)? Why?
4) Refer to Exhibit 20.5 in Chapter 20. Briefly explain one way bank managers may minimize the risk of loan losses given economic conditions.
5) Problem 1 – assessing bank performance (chapter 20, page 576).
6) Briefly explain why a bank’s capital – or net worth – is important when it comes to possible losses, such as during the 2008-09 financial crisis.
7) Briefly explain one of the risks banks face. Why is this risk significant for banks?
8) Select and briefly explain one way banks may manage interest rate risk. Why might it be impossible to eliminate the risk completely?
9) Select one notable bank failure during the 2008-009 credit crisis. What was the primary reason for this failure?
10) Briefly explain how a credit union differs from a traditional commercial bank.
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