BE632 INTERNATIONAL BANKING
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BE632
INTERNATIONAL BANKING
Question 1
Compare and contrast between the terms “consolidation” and “convergence” in the international banking industry. Discuss if these terms are related trends in the banking and financial services industry and whether they influence each other. [TOTAL 50 Marks]
Question 2
(a) Explain the process of securitisation that was undertaken by the financial industry in the past
two decades. Discuss the advantages and risks that securitisation can offer to banks. (25 Marks)
(b) Discuss ifthe deregulation of financial markets had contributed to the creation of more
financial crises in the past two decades. (25 Marks) [TOTAL 50 Marks]
Question 3
(a) Explain what is meant by country or sovereign risk. Discuss the impact of country risk in
the context of loans made by international banks to borrowers in foreign countries. (20 Marks)
(b) California Bank recently made a one-year $10 million loan that pays 10 percent interest
annually. The loan was funded with a Swiss franc (SF) denominated one-year deposit at an annual rate of 8 percent. The current spot rate is SF1.60/$.
(i) What will be the net interest income in dollars on the one-year loan if the spot rate at the end of the year is SF1.58/$? (10 marks)
(ii) What will be the net interest return on assets? (5 marks)
(iii) How far can the SF appreciate before the transaction will result in a loss for Bank
USA? (5 marks)
(iv) What is the total effect on net interest income and principal of this transaction given
the end-of-year spot rates in part (i)? (10 marks)
(Total: 30 Marks) [TOTAL 50 Marks]
Question 4
(a) Discuss the most significant differences between Basel I and Basel II. How is the Basel
Agreement likely to affect a bank's choices among assets it would like to acquire? (20 Marks)
(b) Winchester Bank has $20 million in assets, with risk-adjusted assets of $10 million. Tier I
capital is $500,000, and Tier II capital is $400,000.
(i) What is the current value of the Tier 1 ratio and the Total ratio? (6 marks)
For each of the following transactions, calculate the new value of the Tier 1 and Total ratios and briefly explain the effect of the change as compared to the existing Tier I and Total capital ratios?
(ii) The bank repurchases $100,000 of common stock. (4 marks)
(iii) The bank issues $2,000,000 of CDs and uses the proceeds for loans to homeowners. (4 marks)
(iv) The bank receives $500,000 in deposits and invests them in T-bills. (4 marks)
(v) The bank issues $800,000 in common stock and lends it to help finance a new shopping mall. (4 marks)
(vi) The bank issues $1,000,000 in nonqualifying perpetual preferred stock and purchases
general obligation municipal bonds. (4 marks)
(vii) Homeowners pay back $4,000,000 of mortgages, and the bank uses the proceeds to
build new ATMs. (4 marks)
(Total: 30 Marks) [TOTAL 50 Marks]
2023-01-20