BANK MANAGEMENT

MIDTERM QUESTION

Total mark 70

Section A: 40 Marks (1 * 40)

1. Followings are the information on expected inflows of principal and interest payment on assets
and expected outflows of principal and interest payment on liabilities.

Time Cash inflow Cash outflow

1 1,275,600 1,295,500

2 746,872 831,454

3 341,555 123,897

4 62,482 1,005

5 9,871 0

The discount rate applicable on cash flow is 4.25%. If the total assets and total liabilities are Rs.
20,000,000 and Rs. 18,000,000 respectively, calculate the leverage adjusted duration gap of the
bank. Moreover, if the interest rate rise to 4.75%, what will be the change in the value of the net
worth of the bank.

Section B: 30 marks (2 * 15)

Attend any two out of followings questions.

1. Why financial institutions are crucial for the economic development of a country? Discuss
various roles and functions of financial institutions.
2. Calculate bank’s ratio of Tier 1 capital to risk-weighted-assets and total capital to risk-weighted-
assets under the terms of Basel 1 Agreement by using the following information.

On Balance Sheet Items (Assets)  Amount $

Cash 4,000,000
U.S Treasury securities 30,600,000
Deposit balances due from other 4,000,000
banks
Loans secured by first liens on 66,000,000
residential property (1-4 family
dwellings)
Loans to corporations 105,300,000
   
Off Balance Sheet Items  
Standby letters of credit backing 20,500,000
municipal bond
Long term unused loan commitments 25,500,000
to corporate customers
Tier 1 capital 7,500,000
Tier 2 capital 5,800,000

3. Discuss in detail about the Loan securitization as a tool for managing risks by banks. Discuss
about the parties involved in securitization process and the benefits of the securitization.