Bank managers seem to have to walk a tightrope between managing risk and earning a profit. Explain.
What will be an ideal response?
If we consider the various forms of bank risk and the possible ways to manage it, we can see the challenges posed for a bank seeking to make the highest possible profit (to satisfy its owners). Managing liquidity risk means having to structure securities holdings so that sales can be carried out if needed. This means holding shorter-term securities such as Treasury securities, but they tend to pay less of a return. Managing credit risk means having to diversify, which may mean higher costs to the bank as it gives up a competitive advantage in a narrow line of business? Managing interest-rate risk means restructuring assets to better match liabilities and, as with liquidity risk management, this also reduces potential profitability. Add to this the limitations imposed by regulators (such as not being able to own stock and monitoring of bank leverage) and one might wonder how banks ever manage to earn a profit.
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A 2 percent increase in income increases the quantity demanded of a good by 1 percent. The income elasticity of demand for this good is _______. The good is a _______ good
A. 2; normal B. –2; inferior C. 1/2; normal D. 2; inferior
What factors constitute the primary determinants of income?
What will be an ideal response?
Which of the following statements is correct regarding the imposition of a tax on gasoline? a. The incidence of the tax always falls on the buyer
b. The incidence of the tax depends upon the price elasticities of demand and supply. c. The incidence of the tax always falls on the sellers. d. The oil company will ultimately pay.
To demonstrate the anchoring phenomenon, Kahneman and Tversky would ask research subjects very difficult questions that should be answered with a number between zero and 100
Before asking for the respondent's answer, they would also spin a large wheel that generated random number outcomes from zero to 100. If the respondents were subject to the anchoring effect, then we should expect that: A) their responses are uncorrelated with the numbers generated by the wheel. B) their responses are correlated with the numbers generated by the wheel. C) their responses are wrong most of the time. D) none of the above