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3 pages/≈825 words
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APA
Subject:
Business & Marketing
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Coursework
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English (U.S.)
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Topic:

The Spread of Government Deposit Insurance - Is this a Good Thing

Coursework Instructions:

Don’t quote someone else’s words to answer the following questions, don’t copy anything on the Internet, you can summarize it and rewrite it anyway, you can’t find the same answer on the Internet, you must complete these four questions in two hours, Of course, the sooner the better-each word should be about 200 words.

PART B: DISCUSSION PROBLEMS are designed to encourage student to think critically about the real-world issues.

1.         The spread of government deposit insurance throughout the world.  In your opinion, is this a good thing?  Justify your arguments.         

2.         Should banks be allowed to sell insurance in their branch networks?  Critically explain why you agree or disagree with the proposal.  

3.         The durations of the assets and liabilities are 1.397 years and 0.5535 years, respectively.  The debt/equity ratio is 10.  What is the leveraged adjusted duration gap (LADG)?  With an equity of $20 million, what will the new equity value be if the relative change in interest rates is a decrease of 0.5%?  What variables are available for immunization?  

4.         A bank has issued a one-year loan commitment of $2 million for an upfront fee of 25 basis points.  The back-end fee on the unused portion of the commitment is 10 basis points.  The bank’s cost of funds is 7%, and interest on the loan is 9%.  The client is expected to withdraw 60% of the commitment at the beginning of the year.  What is the expected return on this loan?  Discuss the take-down risk on the value of this bank.

Coursework Sample Content Preview:
PART B: DISCUSSION PROBLEMS are designed to encourage student to think critically about the real-world issues.
1 The spread of government deposit insurance throughout the world. In your opinion, is this a good thing? Justify your arguments.
Government deposit insurance could have a double sided effect of providing help to the government and possible disadvantages on the part of the depositors. Since these kind of insurances do not have any immediate budgetary expenditure, this provides an incentive on the part of banking and the government sector since this can benefit banks during times of uncertainty. Thus, if done right, government deposit insurances could act as a form of security on the part of small depositor while also providing greater funding opportunities on the part of smaller banks.
Nonetheless, it must be noted that the risks of these kinds of insurance could be higher in cases when people purchase higher-risk types of insurances. Higher risk insurances have more premiums yet also requires the bank to pay higher in cases covered by its policy. Thus, the resulting increase in the margin of error could force both the government and the banks to pay more, which is impractical especially in times of crisis. Furthermore, I think that government deposit insurances could lead to more risk-taking actions on the part of the depositors. In most cases, excessive risk-taking increases the risks on all sides of the equation since depositors might not get paid if the funds are insufficient or the banks or government might become bankrupt if it needs to pay its depositors.
2 Should banks be allowed to sell insurance in their branch networks? Critically explain why you agree or disagree with the proposal.
In the past few decades banks have been selling insurance premiums in their branch networks. While this might improve the accessibility of insurance services for every individual, I believe that this could also increase the risk towards potential bankruptcy. Thus, I believe that banks should no...
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