COMSATS university Islamabad, Lahore campus

TERMINAL – FA20
Course Title: Financial Institutions and Markets Course Code: FIN300 Credit Hours: 3
Course Programme Name:
Semester: 4th Batch: Section: Date:
Time Allowed: 180 minutes Maximum Marks: 50
Student’s Name: Reg. No.

Solve all the questions

Question 1:
a. How the capital is managed in a bank. What are the pros and cons in the management of bank
capital?
b. What is the difference between simple capital and risk weighted assets related capital??
10 marks
Question 2:
a. What is the change over the years in the typical balance sheet of a bank in terms of asset
composition and liabilities compositions?
b. Also compare these changes in international markets to the one in Pakistan’s banks?
10 marks

Question 3:
a. What are the tools at disposal of the central bank in the conduction of its monetary
policies and how these tools effect the money supply?
b. Discuss the role of reserves at central bank in establishing an interbank market for
borrowing and lending? How this market’s interest rate effects the other interest rates
prevailing in the market?

15
marks

Question 4:
Describe the bsic facts about term structure in the yield curve and other historic data?
How can this yield curve be used to predict the future interest rates?

10 marks
Question 5:
You own a house worth $400,000 that is located on a river. If the river floods moderately, the
house will be completely destroyed. This happens about once every 50 years. If you build a
seawall, the river would have to flood heavily to destroy your house, which only happens about
once every 200 years. What would be the annual premium for an insurance policy that offers full
insurance? For a policy that only pays 75% of the home value, what are your expected costs with
and without a seawall? Do the different policies provide an incentive to be safer (i.e., to build the
seawall)?

5
marks