1. Describe the difference between bank solvency and bank liquidity.
2. From point of view of asset manager of commercial bank, describe tradeoffs among the objectives of safety, liquidity, and profitability.
3. What do you mean by the term liability management? Explain instruments which banks use in liability management. Write down the advantages and potential pitfalls of aggressive use of liability management for commercial banks?
4. Large bank in your community has been contacted about participating in attractive large syndicated loan arrangement. Your bank has been invited to participate but doesn't have enough excess reserves to meet terms of the agreement. How might your bank raise funds to participate in the deal?
a.Through asset management?
b.Through liability management?
5. Community Bank has total assets of $600 million, total liabilities of $564 million, and earned profits this year of $6 million. Compute Community Bank's:
a.Rate of return on total assets
b.Equity multiplier
c. Rate of return on capital