Final Exam: National Economics University

national economics university
Advanced Bachelor in Banking and Finance
BANKING MANAGEMENT AND FINANCIAL SERVICES COURSE
FINAL EXAM
Time: 90 minutes
Part I: These statements are True or False? (20 marks)

Question I.1. When analyzing the financial statements of a business, a credit analyst will look for all
ratios of profitability, coverage, efficiency, and liquidity. True
Question I.2. Term loans normally are secured by accounts receivables. False (by fixed assets)
Question I.3. One of the 6 C’s of lending, “Character” suggests that the lender must look at the position
of the business firm in the industry and the outlook of the industry to evaluate a loan. False.
Question I.4. Long-term fixed rate deposits are interest-sensitive. False
Question I.5. 10 year fixed rate mortgage loans which have been signed yesterday are non
– interest-sensitive. True.
Question I.6. Among 6 C’s of lending, “Cash” examines whether the borrower will have enough sales
or income to repay the loan. True
Question I.7. Off-balance-sheet items for banks have declined in recent years. False
Question I.8. Common-size ratios are equally useful as VND figures in financial analysis of
corporate borrowers. True
Question I.9. The business loan pricing method that includes the nonfunds operating costs of making a
loan plus the bank's desired profit margin is the Cost-Plus Loan-Pricing Method. True.
Question I.10. CAMELS is a uniform rating system developed by regulators where banks are given a
rating from one to five in each of six categories and an overall rating from one to five. True.
Part II: Assignment (50 marks)

II.1. Concept checks (20 marks): Choosing one of the two following questions:
Question II.1.1. Why do banks and other financial intermediaries exist in modern society,
according to the theory of finance?
(answer: 1.8 – concept check:
There are multiple approaches to answering this question. The traditional view of banks as
financial intermediaries sees them as simultaneously fulfilling the financial-service needs of
savers (surplus-spending units) and borrowers (deficit-spending units), providing both a supply
of credit and a supply of liquid assets. A newer view sees banks as delegated monitors who
assess and evaluate borrowers on behalf of their depositors and earn fees for supplying
monitoring services. Banks also have been viewed in recent theory as suppliers of liquidity and
transactions services that reduce costs for their customers and, through diversification, reduce
risk. Banks are also critical in the payment system for goods and services and have played an
increasingly important role as a guarantor and a risk management role for customers.)
Question II.1.2. In what ways does the lending function affect the economy of its community or
region?
Closed book exam with sheet(s) of formulas and numbers - No cell phones, tablets and laptops – No discussion among students
Page 1
(answer: 16.1 – concept check
Bank credit is one of the most important sources of capital that fuels local economic growth and
development. When banks make loans to support the development of new businesses and to aid
the growth of existing businesses, new jobs are created and there is a greater flow of income and
spending throughout the local economy.
II.2. Analytical assignment (30 marks): Choosing one of the two following questions:
Question II.2.1. What are off balance sheet activities? How do they cause risk to financial
institutions? Illustrate your view by the case of one commercial bank.
Question II.2.2. What major questions or issues must a lender consider in evaluating nearly all
loan requests? Among them, which is more difficult to answer for the case of Vietnam? Why?
Part III. Practical exercises (30 marks)

Question III.1 (5 marks) Use the APY formula required by the Truth in Savings Act for the
following calculation. Suppose that a customer holds a savings deposit in a savings bank for a
year. The balance in the account stood at $2,000 for 180 days and $100 for the remaining days in
the year. If the Savings bank paid this depositor $8.50 in interest earnings for the year, what APY
did this customer receive?
Answer:
 Interest Earned 365 

APY = 100 (1 + ) Days in Period - 1
 Average Account Balance 
In this instance,
 $8.50 365 365 

APY = 100 (1 + ) - 1
 $1036.99 
Or
APY = 0.82 percent,
Where the average account balance is:
$2000 x 180 days + $100 x 185 days

= $1036.99
365 days
Question III.2 (5 marks) Clear Skies Bank of Florida issues a 3-month (90-day) negotiable CD
in the amount of $25 million to ABC Insurance Company at a negotiated annual interest rate of
3.25 percent (360 day basis). Calculate the value of this CD account on the day it matures and
the amount of interest income ABC will earn. What interest return will ABC Insurance earn in a
365 day year?
Answer:
Page 2
= Principal + (Principal * Days to Maturity / 360 * Annual Interest Rate)
= $25 million + ($25 million * 90 / 360 * 0.0325) = $25,203,125
The amount of interest income Travelers will earn is:
$25 million *90 / 360 * 0.0325 = $203,125.
On the basis of a 365-day year Travelers' will earn
365/360 * 0.0325 = 0.03295 or 3.30%
Question III.3 (20 marks) This is the 2018 Balance Sheet of the Kinh Do Bank with average
figures:
(Unit: VND billion, %)
Risk
Assets Amt. Liabilities & Equity Amt.
ratio
Cash and deposits due from
14,720 0 Demand deposits 65,100
banks
Short-term investment securities 27,080 50 Issued short-term valuable papers 32,030
Loans to other credit institutions 156,430 20 Saving deposits 169,830
Net outstanding loans to
159,313 100 Of which: Short-term deposits 33,220
customers
Of which: Short-term loan 90,200 Medium-term deposits 136,610
Medium-term loan 42,020 Borrowings from other credit institutions 58,200
Long-term loan 17,050 Total Liabilities 325,160
(incl. Allowance for loan losses) -10,043 Common stock 26,520
Equipment and offices 15,673 100 Surplus 6,930
Others 10,043 100 Retained earnings 4,563
Total Assets 363,173 Total Equity 38,013
Total Liabilities & Equity 363,173
And the 2018 Income and Expense Statement (Unit: VND billion)
Interest and fees on loans 16,002 Provision for loan losses 135
Interest and dividends on securities 920 Noninterest income and fees 1,382
Total interest income 16,922 Noninterest expenses 2,559
Interest paid on deposits 9,660 Net non-interest income -1,177
Interest on non-deposit borrowings 3,713 Pretax operating income 2,237
Total interest expense 13,373 Securities gains (or losses) 49
Net interest income 3,549 Pretax net operating income 2,286
Corporate income tax rate of 18%
Page 3
a. Please calculate: ROE, ROA, Earnings Spread, Equity Multiplier and Asset Utilization
Ratio (10 marks).
(net interest income = total interest income – total interest expenses = 3,549
Pretax net operating income = Pretax operating income + Securities gains (or losses) =
2,286
Earning spread = (Total interest income/total interested-earned assets) – (total interest

expenses/total interest-paid liabilities)
Asset utilization = Revenue/average total assets
b. How much will the bank lose/gain if the interest rate decreases by 1.5%/year in the next 3
month, assuming that value of assets and liabilities is unchanged, short-term assets and
liabilities are rate-sensitive, except deposits due from banks and demand deposits (5
marks).
(Total rate-sensitive assets = 273,700
Total rate-sensitive liabilities = 123,450
rate-sensitive gap = 150,260
 The bank loss: 150,260* (-1.5%) = (-2,253.9) in the next year.
 The bank loss (-2253.9)/4 = (-563.475) in the next 3 months.
c. Assuming capital tier 1 equals to 40% of common stock, capital tier 2 equals to 10% of
Bank’s borrowing from other credit institutions, deductions = 0. What is CAR (Basel I)?
Comment on the CAR with the minimum level of 8%. (5 marks).
(answer: Total RWA = 209769

CT1 = 10608, CT2 = 5820.
CAR = 7.83%)
Page 4

Final Exam: National Economics University

Uploaded by

Copyright:

Available Formats

Final Exam: National Economics University

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Final Exam: National Economics University

Uploaded by

Copyright:

Available Formats

national economics university

Advanced Bachelor in Banking and Finance

BANKING MANAGEMENT AND FINANCIAL SERVICES COURSE

Part I: These statements are True or False? (20 marks)

Part II: Assignment (50 marks)

Part III. Practical exercises (30 marks)

 Interest Earned 365 

 $8.50 365 365 

APY = 0.82 percent,

Where the average account balance is:

$2000 x 180 days + $100 x 185 days

The amount of interest income Travelers will earn is:

$25 million *90 / 360 * 0.0325 = $203,125.

On the basis of a 365-day year Travelers' will earn

365/360 * 0.0325 = 0.03295 or 3.30%

Corporate income tax rate of 18%

Earning spread = (Total interest income/total interested-earned assets) – (total interest

Asset utilization = Revenue/average total assets

(answer: Total RWA = 209769

You might also like

$25 million 90 / 360 0.0325 = $203,125.