Question

In: Finance

1) Assess the importance of the bank investment function in the context of the bank objectives...

1) Assess the importance of the bank investment function in the context of the bank objectives and comment on the instrument selection process instituted by a bank ( feel free to make assumptions if necessary)

2) You are the CFO of a major bank seeking to make investment decisions in the current economic situation in the US. What would you do and why?

Solutions

Expert Solution

Answer(1): Investment function- Banks have several funds like accepting deposits, lending loans, investment, under writing, portfolio management, wealth management etc. Investment function of bank includes investing its savings into the financial alternatives. Bank can invest its money nationally or internationally.

Importance and Advantages- Bank does investment because it wants to earn some money, bank gets return on its investment that is income for banks. Bank does investment to maintain the liquidity backup. Investment provides diversification to bank's savings.

Instrument selection process- Bank invests into short term and long term financial instruments. Before investing bank analyzes these aspects:

  1. Bank's risk taking capacity.
  2. Risk associated with the financial alternative.
  3. % of Return
  4. Tenure of investment.
  5. Type of investment whether bank wants to invest for short term or long term.

Answer(2): Current economic situation is very bad due to COVID 19. This time economy is going through downturn. Whole world s suffering from COVID19 economically.

Being a CFO, I will go for investment in U.S Market. This time financial markets are down, this is a good time to invest. I will go for some value stocks for long term and I will diversify the portfolio so as to diversify the risk. I will invest some amount into equities and some in Mutual funds because mutual fund have the professional management and they diversify your investment.

A crisis is always good for fresh investment. This crisis will go on too. We are getting the stocks at cheaper prices so it is good time to invest.


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