...ECON 1102: Week 7 Money, Private Banks and the RBA Read Chapter 7 1 Recap Week 6: Equation for PAE PAE C d I P G X C C cT c(1 t )Y Substitute PAE C cT I P G X c(1 t )Y Collect the exogenous variables PAE [C cT I P G X ] c(1 t )Y PAE [C cT I P G X ] c(1 t )Y 2 Recap Week 6: Short Run Equilibrium Equilibrium condition Y PAE Y [C cT I G X ] c(1 t )Y P Solve for equilibrium GDP Y [1 c(1 t )] [C cT I P G X ] Ye 1 [C cT I P G X ] [1 c(1 t )] 3 Recap Week 6: Keynesian model – recessionary gap . PAE (planned aggregate expenditure) PAE = Cd + IP + G + X 0 IP+ G + X IP + G IP Y* Y (= GDP) Starting at potential output (Y*), a fall in exogenous C, I, G, NX will lead to a recessionary gap 4 Recap Week 6: If we assume that the planned aggregate expenditure is given by the equation PAE = 960 + 0.8Y a 10-unit drop in exogenous expenditure would result in a _____________ in short-run equilibrium output. A. 50-unit decline B. 40-unit decline C. 950-unit decline D. 4-unit decline 5 Recap Week 6: Keynesian model – recessionary gap . PAE (planned aggregate expenditure) PAE = C + IP + G + NX 0 Ye Y* I P + G + NX IP + G IP Y (= GDP) Recessionary gap 6 Recap Week 6: Keynesian model – expansionary gap . PAE (planned aggregate expenditure) PAE = C + IP + G + NX I P + G...
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...MP A R Munich Personal RePEc Archive Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Erge¸ Etem Hakan and Arslan Bengul Gulumser c ¨ ¨¨ January 2011 Online at http://mpra.ub.uni-muenchen.de/29848/ MPRA Paper No. 29848, posted 4. April 2011 06:17 UTC Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Etem Hakan Ergeça* and Bengül Gülümser Arslanb Abstract Identifying the impact of the interest rates upon Islamic banks is key to understand the contribution of such institutions to the financial stability, designing monetary policies and devising a proper risk management applicable to these institutions. This article analyzes and investigates the impact of interest rate shock upon the deposits and loans held by the conventional and Islamic banks with particular reference to the period between December 2005 and July 2009 based on Vector Error Correction (VEC) methodology. It is theoretically expected that the Islamic banks, relying on interest-free banking, shall not be affected by the interest rates; however, in concurrence with the previous studies, the article finds that the Islamic banks in Turkey are visibly influenced by interest rates. JEL classification: G21; E52 Keywords: Interest-free banking, monetary policy I. Introduction Islamic banks1 are defined as financial institutions that rely on the principle of Profit and Loss Sharing (PLS) with the entrepreneurial partners in their relevant banking...
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...s oНОВИНИ ЗАРУБІЖНОЇ НАУКИ 415 Mian Sajid Nazir1, Aqsa Butt2, Muhammad Musarrat Nawaz3 INTEREST RATE DETERMINANTS OF BANKS IN PAKISTAN This study attempts to investigate determinant factors of interest rate differential on deposits and loan accounts of Pakistani banks. For this purpose 4 year data on 30 banks is included in this research paper. The empirical results based on the correlational analysis of the relationship between weighted average rate of interest and 10 independent variables which are credit risk, amount of deposit, administrative cost, profit margins, bank's liquidity, amount of loan, market share, inflation rate, macroeconomic conditions and bank specific factors. These variables will help to highlight customer reaction towards variation in interest rates which help banks to review their policies regarding interest rates, margins and risk premium. The results shows that credit risk, administrative costs, profit margins and deposit amounts are important factors for the interest rate determination and these are positively related with interest rate. Bank's liquidity and deposit amount have negative relationship with interest rate. Meanwhile, inflation and market share have no significant relationship with interest rate fluctuations. Keywords: interest rate; banking sector; Pakistan; risk; deposits. Міан Саїд Назір, Акса Батт, Мухаммад Музаррат Наваз ЧИННИКИ, ЩО ВИЗНАЧАЮТЬ ВІДСОТКОВІ СТАВКИ У БАНКАХ ПАКИСТАНУ У статті зроблено спробу визначити чинники...
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... Submitted to: Professor Abdul Bayes Department of Business Administration East West University Submitted by: Minhajul Abedin ID: 2013-1-95-019 Section: 01 Date of submission: 24 august, 2013 Monetary Policy of Bangladesh Decisions regarding the monetary policy are very important for any country in today’s world. To control the supply of money by targeting a rate of interest, and to promote the economic growth and stability, a good control over the monetary policy is a must for every country. Bangladesh is a developing country and its monetary policies are generated by the central bank of the country. Though the land size of Bangladesh is not that big but in terms of total people, it is a big country relative to other countries. As a developing country it is undertaking so many developments and business projects both publicly and privately. The monetary policy of Bangladesh is playing a pivotal role to control the money supply of the country which in turn is promoting the overall economic growth of the country. This essay briefly discusses about some of the activities of the central bank related with the monetary policy of Bangladesh along with some other primary things which are related to the basic monetary policy. In this essay the “Monetary Policy of Bangladesh” will be presented by following this sequence, 1. A brief overview of monetary policy 2. Objectives of the monetary policy 3. Types of monetary policy 4. Tools to implement the monetary...
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...one year. Example of money market is Treasury bills, certificates of deposit (CDs), bankers’ acceptances, commercial paper, federal funds and Eurocurrencies. Literature review The key issue from the source that had been found is to estimate the effects monetary policy has on interest rates in the private money market using market microstructure variables. Besides that, it also examines the impact of policy announcements on these rates. The volatility of interest...
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...com/finance.htm Financial Performance Evaluation of Some Selected Jordanian Commercial Banks Ahmed Arif Almazari Department of Administrative Sciences- Finance Section, King Saud University E-mail: aalmazari@ksu.edu.sa; ahmadarif26@hotmail.com Abstract This study attempted basically to measure the financial performance of some selected Jordanian commercial banks for the period 2005-2009. It is evaluatory in nature, drawing sources of information from secondary data. The financial performance of banks is studied on the basis of financial variables and ratios. In this paper an attempt was made to analyze the financial performance of seven selected Jordanian commercial banks using simple regression in order to estimate the impact of independent variable represented by; the bank size, asset management, and operational efficiency on dependent variablefinancial performance represented by; return on assets and interest income size. It was found that banks with higher total deposits, credits, assets, and shareholders’ equity does not always mean that has better profitability performance. It was also found that there exists a positive correlation between financial performance and asset size, asset utilization and operational efficiency, which was also confirmed with regression analysis that financial performance is greatly influenced by these independent factors. This study can be a source of help to bank managers to improve their financial performance and formulate policies that will promote...
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...Chapter Eight Interest Rate Risk I Chapter Outline Introduction The Central Bank and Interest Rate Risk The Repricing Model • Rate-Sensitive Assets • Rate-Sensitive Liabilities • Equal Changes in Rates on RSAs and RSLs • Unequal Changes in Rates on RSAs and RSLs Weaknesses of the Repricing Model • Market Value Effects • Overaggregation • The Problem of Runoffs • Cash Flows from Off-Balance Sheet Activities The Maturity Model • The Maturity Model with a Portfolio of Assets and Liabilities Weakness of the Maturity Model Summary Appendix 8A: Term Structure of Interest Rates • Unbiased Expectations Theory • Liquidity Premium Theory Market Segmentation Theory Solutions for End-of-Chapter Questions and Problems: Chapter Eight 1. What was the impact on interest rates of the borrowed reserves targeting regime used by the Federal Reserve from 1982 to 1993? The volatility of interest rates was significantly lower than under the nonborrowed reserves target regime used in the three years immediately prior to 1982. Figure 8-1 indicates that both the level and volatility of interest rates declined even further after 1993 when the Fed decided that it would target primarily the fed funds rate as a guide for monetary policy. 2. How has the increased level of financial market integration affected interest rates? Increased financial market integration, or globalization...
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...community banks, regional banks, and money-center banks? Contrast the business activities, location, and markets of each of these bank groups. Community banks typically have assets under $1 billion and serve consumer and small business customers in local markets. In 2006, 93.4 percent of the banks in the United States were classified as community banks. However, these banks held only 12.4 percent of the assets of the banking industry. In comparison with regional and money-center banks, community banks typically hold a larger percentage of assets in consumer and real estate loans and a smaller percentage of assets in commercial and industrial loans. These banks also rely more heavily on local deposits and less heavily on borrowed and international funds. Regional banks range in size from several billion dollars to several hundred billion dollars in assets. The banks normally are headquartered in larger regional cities and often have offices and branches in locations throughout large portions of the United States. Although these banks provide lending products to large corporate customers, many of the regional banks have developed sophisticated electronic and branching services to consumer and residential customers. Regional banks utilize retail deposit bases for funding, but also develop relationships with large corporate customers and international money centers. Money center banks rely heavily on nondeposit or borrowed sources of funds. Some of these banks have no retail...
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...ON CVP ANALYSIS IN BANK Submitted to Dr. Harunur Rashid Professor Department of Accounting and Information Systems University of Chittagong Submitted by Md. Ariful Hoque B.B.A. (Hons.): 4th Year. Class Roll: 4541 Exam Roll: 2004 /42 Session: 2003-2004 Department of Accounting and Information Systems University of Chittagong Date of submission: August 25, 2009 Letter of Submission To Dr. Harunur Rashid Professor Department of Accounting and Information Systems University of Chittagong. Subject: Submission of Term Paper report on “CVP analysis in Bank.” Sir, With the greatest pleasure, I would like to submit my report on “CVP analysis in Bank” I have tried my best to gain practical experience and also tried to reflect the same in report with my limited scope and knowledge. I wish your hearty consideration, if there is any deviation in my report. I wish to thank for your friendly co-ordination to make the program success. Yours truly, ____________________ (Md. Ariful Hoque) B.B.A. (Hons.): 4th Year. Class Roll: 4541 Exam Roll: 2004 /42 Session: 2003-2004 Department of Accounting and Information Systems University of Chittagong PREFACE The Term Paper is a program that is common for the B.B.A. student. As students of the Commerce Faculty we got adventurous touch of the program under our department of AIS. The program...
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...has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the problem between these two areas. Therefore, an opportunity is offered by Mahmood Osman Imam sir. Objective of the Report The objective of the report is to evaluate the potential impact on a bank (or a group of entities) of a specific event &/ or movement in a set of financial or macro variable. That’s why we try to find out the following risk: • Credit risk • Interest rate risk • Exchange rate risk • Equity price risk • Liquidity risk Scope of the Report The report may be classified in three broad sections: • Introduction part • Pre-Analysis part • Analysis part Limitations of the Study In preparing the report, some problem is found, affected the presentation of the report. The acute problems are- a) Lack of information or data: Bank is sophisticated business sector. So they are not interested to provide the confidential data. As a result in the report there is a confidential data limitation. Moreover, the bank has no organized product publicity, documents or leaflets for all the products. b) Time constraint: It is something like impossible to cover the entire stress testing procedure exploiting a this time period while an employee or an officer is awarded with one or two year probationary period to do his or her...
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... certificates of deposits and other types of commercial borrowings. The major risk a bank runs is liquidity risk. Under any circumstances a bank has to honor its commitments. As a result, it has to make sure that enough liquidity is available to meet fund requirements in situations like liquidity crisis in the market, policy changes by central bank, a name problem of the bank etc. So, a bank’s balance sheet should have enough liquid assets for meeting contingencies. Here, I can introduce with the theoretical development of asset liability management from the different aspects of The City Bank Limited. Then I can show their policy and statements regarding to the managing their assets liabilities and then I have shown their liquidity analysis through the external analysis to assess their recent market condition. The whole analysis part is undergone from 2004 to 2008. In this analysis part I have analyzed different ratio related to liquidity management so that liquidity position of CBL can easily be assessed. Then I have shown the maturity model from 2004 to 2008. In this analysis CBL’s weighted average assets and liabilities are compared. Here we can see that except 2004 the bank’s assets’ weighted average maturity always higher than its weighted average liabilities’ maturity. Then I also analyze the ratio related to assets’ quality of CBL. Then I have performed the statistical analysis. In this part I have shown trend analysis on loans & advances, deposit and net liquidity...
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...Expense Statement of Happy Merchants National Bank Income and Expense Statement (Report of Income) | Interest and fees on loans | $44 | Interest and dividends on securities | 6 | Total interest income | 50 | Interest paid on deposits | 32 | Interest on non-deposit borrowings | 6 | Total interest expense | 38 | Net interest income | 12 | Provision for loan losses | 1 | Noninterest income and fees | 16 | Noninterest expenses: | | Salaries and employee benefits | 10 | Overhead expenses | 5 | Other noninterest expenses | 2 | Total noninterest expenses | 17 | Net noninterest income | 1 | Pretax operating income | 10 | Securities gains (or losses) | 2 | Pretax net operating income | 12 | Taxes | 2 | Net operating income | 10 | Net extraordinary income | -1 | Net income | 9 | b) Ratio Analysis and c) Strengths and weaknesses i. Return on equity ROE=Net IncomeTotal Equity=980=11.25% Return on equity ratio for Happy Merchants National bank indicates that for every dollar invested by stockholders the bank earns 11,25%. Strength Due to such return the bank is able to strongly position itself among peers. Investors will be reassured that the bank is going in right direction toward wealth maximization. ii. Return on assets ROA=Net IncomeTotal Assets=9980=0.91% For every dollar invested in assets the return makes up 0, 91 or 0, 0091$ amount. Weakness The bank was less successful in earning more money on less...
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... 400. 360 40 .90 .8 .10 .2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 500. 440 60 .88 .8 .12 .2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 600. 520 80 .87 .8 .13 .2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 700. 600 100 .86 .8 .14 .2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ [pic] [pic] Given the graphs below, calculate the change in government spending that is needed for this economy to achieve full employment. [pic] 1. MPC = ___change in C / change in income = 75/100 = .75___ 2. MPS = __change in S...
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...COMMERCIAL BANKS Commercial banks play an important role in the economy. It works as financial intermediary. The major function of commercial banks is to collect funds as deposit from small savers. It uses the collection of funds to invest in large projects or to loan other investors. In this way banks protects the savers from risk and in exchange enjoys spread. Now-a-days banks are not confined to these functions solely. Other functions of commercial banks are- * Securities underwriting * Asset management * Foreign exchange trading * Commission based services etc. COMMERCIAL BANKS IN BANGLADESH After the independence there were six commercial banks that were merged and grouped in the country. Now there are 48 scheduled banks operating in the country. These are categorized as * 04- State owned commercial banks (SCB) * 05- Specialized commercial banks (SB) * 30- Private commercial bank (PCB) * 09- Foreign commercial bank (FCB) Among these, 30 Banks are listed with DSE. All the commercials banks operate in branch banking process to diversify their loan and advance portfolio. At the end of the third quarter of 2009 there are 6981 branches including SME service centers in the country. It has increased at a rate of .65%. STRENGTH GDP growth at constant market price for the FY08-09 was 5.88% while deposit growth is 3.04%. Of the deposit PCBs account for above 50% of the total bank deposit. The number of bank branches contributed to increase savings...
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...Different roles of banks, government, central banks, in controlling the business cycle. Bank is a financial intermediary that uses liquid assets in the form of bank deposits to finance the illiquid investments of borrowers. Banks can create liquidity because it isn’t necessary for a bank to keep all of the funds deposited with it in the form of highly liquid assets. Except in the case of a bank run—which we’ll get to shortly—all of a bank’s depositors won’t want to withdraw their funds at the same time. So a bank can provide its depositors with liquid assets yet still invest much of the depositors’ funds in illiquid assets, such as mortgages and business loans. 2.How money is created by banks through checking accounts and the role of the money multiplier. Multiplier The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves. In other words, it is money used to create more money and is calculated by dividing total bank deposits by the reserve requirement. The multiplier effect depends on the set reserve requirement. So, to calculate the impact of the multiplier effect on the money supply, we start with the amount banks initially take in through deposits and divide this by the reserve ratio. If, for example, the reserve requirement is 20%, for every $100 a customer deposits into a bank, $20 must be kept in reserve. However, the...
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