Investment Banking 101 Test Latest Updated

What is a bank? - Answer Banks serve as a financial intermediaries that receive funds from depositors & loan funds from borrowers Banks help - Answer lubricate the economy Banks provide - Answer security for depositors Banks earn a - Answer return for their stockholders Net interest income Non interest income Primary needs met by a bank - Answer conduct financial transactions provide access to credit facilitate investment of excess funds insure against loss Products offered by banks - Answer Loan products: loans, lines, credit cards Deposit products: checking accounts, saving accounts, CD's, money market accounts, and retirement accounts Types of banks (often defined by lending activities) - Answer mortgage commercial consumer/retail agriculture investment Typical management team structure - Answer President/CEO Chief Operating Officer CFO Chief Lending Officer Others: chief deposit officer, chief strategic officer, chief compliance officer, chief investment officer, chief marketing officer How do banks make money? - Answer Net interest margin and non interest income Net interest margin is also known as - Answer spread Net interest margin consists of - Answer interest income and interest expense Net interest margin is - Answer charge a higher price for loans that they pay for deposits largest percentage of revenue results in a steady, stable income stream, but has its own vulnerabilities Non interest income consists of - Answer service charges on deposit accounts loan servicing and origination fees net gains on asset sales commission and fees on additional services Non interest income is not - Answer vulnerable to margin compression/interest rate environment Non interest income is increasing in - Answer importance as a revenue source for 20 plus years non interest income is under - Answer scrutiny What do banks fear? - Answer market risk (interest rate risk, prepayment risk) credit risk liquidity risk operational risk political/regulatory risk Yield Curve - Answer represents interest rates at various terms Yield curve heavily influences - Answer A/L (asset/liability) strategy for banks, private investors, and government agencies Assets include - Answer cash, loans, property investments and securities Liabilities include - Answer checkable deposits, non-transaction deposits, discount loans from the Federal Reserve, and loans from other institutions and corporations A/L Management is a banking process... - Answer whereby mgmt continually rearranges both sides of the banks balance sheet in order to maximize profits and allows for adequate liability BV DDA products help with: - Answer customer acquisition customer retention deposit acquisition behavior change Kasasa Cash (Rewards Checking) appeals - Answer to practical today consumers Rewards Checking profitability drivers: - Answer higher average balance than free checking better interchange revenue than free checking lower per-account non-interest expense Value of Kasasa Cash - Answer strong option best with strong loan demand and high MAY can be configured to meet needs of different FI's Cost of Funds - Answer commonly used metric for measuring the interest expense associated with deposits as a percentage rate interest expense __________________ = COF deposits Costs of Deposits - Answer BV term designed to holistically capture the real total cost of funds offset by marginal net non-interest income interest expense + non-interest expense - NII _______________________________________________ = COD deposits Kasasa Saver appeals to - Answer pratical future consumers Kasasa Saver is linked to - Answer rewards checking Kasasa Saver supercharges - Answer deposit acquisition Kasasa Saver is best with - Answer strong loan demand and high MAY Kasasa Tunes appeals to - Answer experience seekers Kasasa Tunes can help - Answer acquire tough to reach consumers Kasasa Tunes profitability drivers are - Answer low average balancers strong NII negative CoD less profitable per account; more profitable per dollar Kasasa Giving appeals to - Answer givers Kasasa Giving can - Answer bolster an FI's image Kasasa Givings profitability characteristics - Answer include medium average balancers strong NII