Question

In: Finance

A bank had bought corporate bonds with the idea of benefiting from high coupon payments.

QUESTION 11

A bank had bought corporate bonds with the idea of benefiting from high coupon payments. However, the bank realizes that it is short of ESF and is now contemplating selling them in the near future. The bank will reclassify the government bonds from ________ to _______.


A.

investment securities ; trading securities


B.

trading securities ; available-for-sale securities


C.

available-for-sale securities ; investment securities


D.

trading securities ; investment securities


E.

investment securities ; available-for-sale securities

QUESTION 12

What is a negative side effect of the minimum capital requirements imposed by Basel?


A.

Banks are required to hold more capital if they hold risky assets.


B.

The risk-weight assets calculation discriminates between asset classes.


C.

CET1 can be used to meet all minimum requirements.


D.

The requirements amplify the economic cycle.


E.

Possible removal of bank license if requirements are failed.

Solutions

Expert Solution

Q 11)

The correct option is B. trading securities ; available-for-sale securities

The first blank cannot be investment securities as these securities are  purchased by a company for the purposes of realizing a short-term profit in terms of high coupon payments which can referred as trading securities. then the banks can classify them as available for sale securities before selling it.

Options A,C D and E are incorrect.


Q 12)

The correct option is A. Banks are required to hold more capital if they hold risky assets.

The regulators have established minimum required levels of bank capital that the bank should hold,  requiring more capital if the bank is larger or is riskier.

The other options B, C, Dand E are not negative side effect of the minimum capital requirements imposed by Basel.

CET1 cannot be used to meet all minimum requirements.
The requirements donot amplify the economic cycle.
bank license iss not removed bu fines may be imposed if requirements are failed.

jeff jeffy answered 2 years ago
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