Bank Management -QUESTIONS AND ANSWERS

Who are "surplus units" in the economy? - -Participants who have funds in excess of their needs for consumption -Give two factors that contribute to the existence of a role for a financial intermediary in the economy - -Information, transactions, short maturities of depositors, long maturities of depositors, dollar amounts differ, knowledge differences -Which of the following must be kept satisfied by the managers of the bank if the bank is to be successful and be an on-going business? - -- Depositors - Borrowers - Regulators - Shareholders -To become the largest bank in your market, you could - -Increase deposit rates, lower loan rates -The "Net Burden Ratio" is - -Non-interest expense minus non-interest revenue all divided by earning assets -Securities gains are excluded from the non-interest revenue because - -They are more like an extraordinary gain or loss and are included with those -ROE = - -ROA x Assets/Equity -The ROE Breakdown or Dupont Chart for a bank - -Shows the linkages between ratios such as NIM, Earning Assets, ROA, and ROE -Interest Rate Earned = Rate on Securities x Sec./EA + Rate on Loans x Loans/EA + Rate on FFS and other earning assets x (FFS+ other earning assets)/EA - -True This is the formula that the boxes at the bottom of the ROE Breakdown are illustrating. Basically, this is a version of "Rate x Quantity" except in ratio form as a proportion of Earning Assets.