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ACC3019 - REVISION – 2022

NON-CALCULATION

1. Liquidity risk: (Wk 2,3) (in banks)

· Explain what liquidity risk means

· Explain the two main categories of liquidity risk

· Explain why banks are better at providing liquidity than non-banks?

2. Off balance sheet activities (OBS): (wk 2)

·  Explain what OBS activities mean

·  Examples to show how they could potentially have negative impact on bank performance

·  Assess the impact of OBS activities of banks during the last financial crisis of 2007/2008

3. Too-big-to-fail (TBTF): (Wk  4 )

·  Explain what TBTF is using concrete examples

·  What structural measures (policies) have been put in place to curtail the TBTF phenomenon?

4. Causes of the last global financial crisis:  (wk  4)

· What are the three main causes for the last global financial crisis according to Mishkin (2019)?

· Assess the three causes, using the knowledge from the course.

5. Causes of financial market failures: (wk 4  )

· What are the three main causes of financial market failures in general (not of the last financial crisis)?

· What should government do to remedy these failures?

6. Negative impact of regulation: (Wk 4)

· Identify and analyse 5 circumstances under which regulation might have negative impacts on the stability of the global banking industry.

7. The Northern Rock bank run in 2007 (wk 4)

· Explain what happened

·  What could a bank do during a liquidity crisis?

·  What regulation has been introduced by Basel III to ensure banks have enough liquidity coverage?

8. Credit default swaps: (wk 9)

· Explain how a CDS is used in practice as a risk management tool

· Assess critically the claim that CDS was to blame in part for the last global financial crisis

· Calculate the quarterly payment made by the protection buyer of a CDS transaction where the nominal amount is $50 million with a 210 basis points (assuming 90 days per quarter and 360 days per year)

CALCULATIONS:

1. Share options (wk8)

2. Interest rate options (Wk8 )

3. Reserve required ratio calculation (wk 3)

4. Basel requirements (wk 5)

· RWA,

· Tier 1 & Tier 2 capital ratios

· Leverage ratio

· Operational risk

· Capital Conservation Buffer