FIN 4413 - PB Quiz

difference between Autosim mode and Competitive mode

In *autosim mode,* you play against the machine. In *competitive mode,* you compete directly with other bankers in your course.

"perfect market" securities

Quantity-Set Items *A security is said to trade in a "perfect market" when* individual buyers and sellers can trade large quantities without having a noticeable effect on the security's price. Perfect- market securities must be available in *large supply, and have very low default risk* - or at least have default probabilities that are widely understood. A financial institution will buy and sell perfect market securities to fill gaps in its balance sheet, or as a means of speculating on interest rate changes.

each bank must hold equity capital equal to...

a minimum percentage of its credit-risk-weighted assets

rate ceiling on all of the following deposit products

our Instructor can impose a rate ceiling on one or more of the following five deposit products (*retail CDs, passbook, LTRDs, and retail and corporate demand deposits*)

ProBanker's discount window lending differs...

quite substantially from the Federal Reserve's lending facility, which is also called the Discount Window. In ProBanker, DWA lending is unsecured, quite expensive (compared to Fed Funds), and can be provided in very large amounts.

estimated supply curve for long-term retail deposit balances

straight upward slope y-axis = rate paid % x-axis = new balances ($1,000s)

describes the required reserve ratios for your bank

The Economic Environment Report which can change over the course of your simulation.

you can advertise all of - installment loans? mortgage loans? corporate demand deposits?

& retail demand deposits retail CDs passbook savings long-term retail deposits

NOT an option when initially logging in to the ProBanker website (to pay)

After successfully logging in, you will come to the course home page. *Initially, you will be provided with three free logins. A "Free Login" provides you limited access to ProBanker's features*. Once you have paid, of course, all ProBanker features become available to you.

demand deposit levels interact with

Although U.S. banks may not (by law) pay explicit interest on these balances, they will perform free services in proportion to the balances you hold with them. These free services frequently relate to check clearing, and hence lower the cost of servicing your demand deposit customers.

.... on the ASSETS side

For banks, the LLA (Loan Loss Allowance) is generally shown ... *on the asset side*

Revenue for a bank is composed of...

Loan Interest Income + Interest on G-Bonds Fee Income + Interest Income + Short term capital gains (loss) on bonds

...... investors use to measure your bank's riskiness?

Market investors *measure your bank's riskiness* as its leverage, computed as the ratio of Net Total Assets to Tier 1 capital.

reserve requirement

These reserve balances must satisfy reserve requirements, which are expressed as a proportion of various deposit balances. The Economic Environment Report always shows the current reserve requirement rates

bank is being rationed by (in)

You can determine if your *bank is being rationed in* the FFP and CD markets by comparing your requested CD volumes with the amounts that finally appear on your balance sheet.

All loans, deposits, and bonds in ProBanker are balloon instruments

interest is paid at the end of each quarter, but no principal is repaid before maturity. This feature makes the maturity and the duration of loans and bonds nearly identical.

Because customer relationship effects make customers slow to switch bands even when....

market rates change. The effective maturities of some balance sheet items in ProBanker substantially exceed their stated maturities...

Floating rate loans have a maturity

of two quarters, and the contract rate is specified as a markup (or "spread") over an economy-wide "floating rate loan base"

probanker expresses all dollar amounts in

thousands of dollars

not listed as a rule for maximizing profits

two main rules: - Select loan rates so that the marginal revenue on loans equals the marginal cost of your loanable funds. - Select deposit rates such that the marginal cost of loanable funds equals either the government bond rate or the cost of perfect-market liabilities (CDs or FFP).

following are parts of the "income effect" EXCEPT

when the economy is doing well, some people have more savings to invest in bank deposits, while other people have the confidence to take on more debt. Also, when firms experience high demand for their products, they need more loans to finance inventory, pay their workers, and so forth.

Holding other factors constant, higher balances appear in the rate-set asset account (no... *deposit account*) when:

• the effective rate paid is higher, • the effective rate paid by Regional competitors is lower, and • the rate on similar-maturity government bonds is lower.

additional cost of taking in bank deposits

• unreimbursed costs of servicing liability-side customers, • advertising to attract new deposit customers, and • deposit insurance premium (FDIC).