Background on Bonds n     Bonds represent long-term debt securities l      Contractual l      Promise to pay future cash flows to investors n     The issuer of the bond is obligated to pay: l      Interest (or coupon) payments periodically usually semiannually l      Par ...

Money Market Securities n     Maturity of a year or less n     Debt securities issued by corporations and governments that need short-term funds n     Large primary market focus n     Purchased by corporations and financial institutions Money Market Securities n     Treasury Bills ...

Monetary Theory and Policy How Monetary Policy Affects Economy Lags in Monetary Policy n     Recognition lag l      Most economic problems revealed by statistics, not observation l      Fed quick to see changes in economy n     Implementation lag l      Fed acts quickly ...

Determination of Interest Rates Are Interest Rate Movements Relevant? n     Changes in interest rates impact the real economy l      Investment spending l      Interest sensitive consumer spending such as housing n     Interest rate changes affect the values of all securities l      ...

Role of Financial Markets and Institutions Overview of Financial Markets n     Financial markets provide for financial intermediation--financial savings to investment n     Financial markets provide payments system n     Financial markets provide means to manage risk Primary vs. Secondary Markets n     PRIMARY ...

Bank Lending: Policies & Procedures Objectives of Lending Policies n           Resource planning to match lending outlay. n           Strategy to win over the nearest competitors. n           Augment good lending base with moderate risk involvement. n           Increased profitability. n           Ensure balanced loan ...

Management of a Bank’s Equity capital Position Capital n The long-term funds coming from debt & equity that support a bank’s long-term assets & absorb its earnings losses. Bank Capital & Risk n    Credit or Default Risk. n    Liquidity Risk. ...

Liquidity & Reserve Management Strategies & Policies Supplies of Liquidity Flowing into Banks. n    Incoming deposits. n    Revenues from the sale of nondeposit services. n    Customer loan repayments. n    Sales of bank assets. n    Borrowings from the money market. Demands ...

The Investment Function in Banking Functions of a Bank’s Security Portfolio n           Stabilize the bank’s income, so that bank revenues level out over the business cycle. n           Offset credit risk exposure in the bank’s loan portfolio. n           Provide geographic diversification. ...

Asset Liability Management – Determining & Measuring Interest Rates Asset-Liability Management net    Control of a bank’s sensitivity to changes in market interest rates to limit losses in its net income or equity.  The principal goals of asset-liability management are: ...