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. Submit your assignment using the assignment link.
- Briefly differentiate between a commercial bank and a consumer finance company. What is the most significant difference between these two?
- Identify one of the significant risks finance companies face. Why is this risk important to monitor?
- Select one factor that affects cash flows for a finance company valuation. Why is this factor significant for its operations?
- Select one factor that affects the required rate of return for investors in finance companies. Why is this factor significant for investors?
- Speculate on why you think a finance company is in a better position to offer credit cards than a commercial bank.
- What is Net Asset Value (NAV) per share and what is the basic means used to determine its value?
- Identify one expense of a mutual fund and briefly explain why management charges this fee. Why might investors be concerned with this fee?
- In what way does a change in the risk-free rate affect a bond mutual fund?
- Based on your understanding of mutual funds, would you favor a mutual fund of mutual funds or not? Why?
- Briefly differentiate an exchange-traded fund from a mutual fund. Which would you select and why?
- Select one factor that affects cash flows for a bank valuation. Why is this factor significant for banking operations?
- Select one factor that affects the required rate of return for investors in commercial banks. Why is this factor significant for investors?
- Differentiate interest income from non-interest income. Which, if any, is more significant for long-term health of banks (in your opinion)? Why?
- Refer to Exhibit 20.5 in Chapter 20. Briefly explain one-way bank managers may minimize the risk of loan losses given economic conditions.
- Problem 1 – assessing bank performance (chapter 20, page 576).
- 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.
- Briefly explain one of the risks banks face. Why is this risk significant for banks?
- Select and briefly explain one way banks may manage interest rate risk. Why might it be impossible to eliminate the risk completely?
- Select one notable bank failure during the 2008-2009 credit crisis. What was the primary reason for this failure?
- Briefly explain how a credit union differs from a traditional commercial bank.
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