Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 19, Problem 4Q
Summary Introduction
To determine: The manner in which investments in municipal bonds and REIT’s could decrease a bank’s willingness to act as a lessor.
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Commercial banks moved heavily into equipment leasing during the early1970s, acting as lessors. One major reason for this invasion of the leasingindustry was to gain the benefits of accelerated depreciation and the investment tax credit on leased equipment. During this same period, commercialbanks were investing heavily in municipal securities, and they were alsomaking loans to real estate investment trusts (REITs). In the mid-1970s, theseREITs got into such serious difficulty that many banks suffered large losseson their REIT loans. Explain how its investments in municipal bonds andREITs could reduce a bank’s willingness to act as a lessor.
QuickBank has decided to lower the interest rate it charges on business loans in order to attract more business. It has succeeded in boosting the number of loan applications, but it finds that many of the applicants turn out to be very poor credit risks. This illustrates the problem known as
adverse selection
moral hazard
the principal-agent porblem
diversification
A commercial bank in Barbados faces serious liquidity problems; however, they have an asset that has the required value to meet their debt obligations. However, due to poor economic conditions, they may not get a buyer in time to purchase such an asset at their preferred price, so they may end up losing money for selling that asset lower than their preferred price, or if they choose not to sell the asset, they will not be able to meet their financial obligation. Which of the following strategy is best suited to manage the bank’s liquidity risk?
Select one:
a.
Interest rate swaps
b.
Stress Tests
c.
Diversifying
d.
Hedging
Chapter 19 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 19 - Define each of the following terms: a. Lessee;...Ch. 19 - Distinguish between operating leases and financial...Ch. 19 - Prob. 3QCh. 19 - Prob. 4QCh. 19 - Prob. 5QCh. 19 - Prob. 6QCh. 19 - Prob. 7QCh. 19 - Prob. 8QCh. 19 - Reynolds Construction (RC) needs a piece of...Ch. 19 - Lease versus Buy Consider the data in Problem...
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