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2401 Exam 07 Essay

1340 words - 6 pages

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AFF/AFW2401 Replacement Paper 24.5.07 Page 1 of 18
Monash University
Semester One Examination 2007
Faculty of Business and Economics
Department of Accounting and Finance
EXAM CODES: AFF/AFW2401
TITLE OF PAPER: COMMERCIAL BANKING AND FINANCE
EXAM DURATION: 3 hours
READING TIME: 10 minutes
THIS PAPER IS FOR STUDENTS STUDYING AT: (office use only - tick where applicable)
Berwick Clayton Peninsula Distance Education Open Learning
Caulfield Gippsland Sunway Hong Kong Other (specify)
During an exam, you must not have in your possession, a book, notes, paper, calculator, pencil case, mobile phone or any other material/item which has not been authorised for the ...view middle of the document...

5.07 Page 2 of 18
Question One
“An Australian bank’s securities portfolio typically comprises securities with low credit risk and high marketability.”
(a) Outline the main objectives of a bank’s securities portfolio and then explain the statement above making reference to these objectives, use examples to illustrate your answer.
(b) Bank XYZ is currently using the spaced maturity (or laddered) approach to structuring the maturities of its securities portfolio. A board member has suggested that Bank XYZ should use the split maturity (or barbell) approach to structuring the maturities of its securities portfolio.
Identify the main features of these two approaches and discuss the advantages and disadvantages of each.
(Total = 7 + 8 = 15 marks)
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AFF/AFW2401 Replacement Paper 24.5.07 Page 3 of 18
Question Two
(a)
Define each of the items listed below and explain how it is calculated:

return on equity

return on assets

leverage multiplier

profit margin

asset utilisation

percentage net interest margin

simple capital ratio

simple liquidity ratio
(6 marks)
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AFF/AFW2401 COMMERCIAL BANKING AND FINANCE
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(b)
VictoriaOne Bank’s financial statements for 2005 and 2006 are provided below:
Balance Sheet
Assets
2005
2006
Liabilities
2005
2006
Cash/liquidity
16,800,000
21,600,000
Current debt
148,800,000
153,600,000
Loans etc
264,000,000
289,200,000
Long term debt
112,800,000
136,800,000
Premises etc
2,400,000
2,400,000
Equity
21,600,000
22,800,000
Total
283,200,000
313,200,000
Total
283,200,000
313,200,000
Income Statement
2005
2006
Interest revenue
12,000,000
12,480,000
Interest expense
-3,600,000
-4,032,000
Net interest income
8,400,000
8,448,000
Non-interest income
2,160,000
2,400,000
Non-interest expense
-3,600,000
-3,600,000
Net non-interest cost
-1,440,000
-1,200,000
Net operating income
6,960,000
7,248,000
Tax (30%)
-2,088,000
-2,174,400
Net income
4,872,000
5,073,600
Using the data provided, complete the table below by calculating the values for VictoriaOne Bank for 2005 and 2006.
(4 marks)
2005
2006
return on equity
return on assets
leverage multiplier
profit margin
asset utilisation (asset use)
percentage net interest margin
simple capital ratio
simple liquidity ratio
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AFF/AFW2401 Replacement Paper 24.5.07 Page 6 of 18
(c)
(i) Given the ratios you have calculated in Q1(b), comment on the performance of VictoriaOne Bank.
(ii)
What further information would help you make a more complete assessment?
(10 marks)
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AFF/AFW2401 Replacement Paper 24.5.07...

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