Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FINS1612 > CHAPTER 2 > Flashcards

CHAPTER 2 Flashcards

1
Q

Who authorises financial intermediation institutions?

A

Australian Prudential Regulation Authority (APRA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does the Australian Prudential Authority (APRA) do?

A

Authorises financial intermediation institutions and labelled them as Authorised Deposit-taking Institutions (ADIs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Explain the asset management (before 1980´s)

A

Loan portfolio is tailored to match the available deposit base.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Explain the liability management (after 1980´s)

A

Deposit base and other funding sources are managed to fund loan demand.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How does the sources of funds of commercial banks appear in the balance sheet?

A

As liabilities or shareholders funds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Banks offer a range of products with mixes of…

A

Liquidity, return, maturity and cash flows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Types of liabilities

A 
Current deposits
Term deposits
Negotiable certificates of deposits (CDs)
Bill
Debt liabilities
Foreign currency liabilities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Types of equities

A

Loan capital

Ordinary shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How does the use of funds of commercial banks appear in the balance sheet?

A

As assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Types of assets

A

Personal and housing finance
Commercial
Government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Personal and housing finance assets

A

Mortgage
Investment property
Fixed-term loan
Credit card

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Commercial assets

A

Fixed-term loan
Overdraft
Bank bills held
Lease

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Government assets

A

Treasury notes

Treasury bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Characteristic of the off-balance-sheet transactions

A

Conditional: if an event occurs, they convert into on-balance sheet.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Off-balance sheet include:

A

Direct credit substitutes
Trade and performance related items
Commitments
Market rate-related contracts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Treasury notes

A

Short-term discount securities issued by the Commonwealth Government.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Treasury bonds

A

Long-term securities issued by the Commonwealth Government that pay a specified interest coupon stream.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Direct credit substitutes

A

Undertaken by a bank (guarantor) to support the financial obligation of a client.
A payment is required if the client defaults on a payment to a third party.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Trade and performance related items

A

Guarantee provided by a bank to a third party, promising financial compensation for non performance contractual obligations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Commitments

A

Contractual financial obligation of a bank that are yet to be completed or delivered.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Market rate-related contracts

A

Derivative products to manage exposures to foreign exchange risk, interest rate risk, equity price risk and commodity risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Value of the off-balance-sheet

A

More than 5 times the total value of the assets held.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Primary factor contributing to the weakness of companies that went to bankrupt in the Global Financial Crisis

A

Amount of leverage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Imposition and monitoring of standards to promote long-term financial stability.

A

Prudential supervision

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Australian regulatory structure

A

Reserve Bank of Australia (RBA)
Australian Prudential Regulation Authority (APRA)
Australian Securities and Investments Commission (ASIC)
Australian Competition and Consumer Commission (ACCC)

26
Q

Reserve Bank of Australia (RBA)

A

System stability and payment system.

27
Q

Australian Prudential Regulation Authority (APRA)

A

Supervision of depository institutions, insurance offices and superannuation funds.

28
Q

Australian Securities and Investments Commission (ASIC)

A

Market integrity and investor protection.

29
Q

Australian Competition and Consumer Commission (ACCC)

A

Competition policy.

30
Q

“Buffer” against losses of the financial institutions

A

Capital adequacy

31
Q

Functions of capital

A

Source of equity funds for a corporation
Demonstrate shareholders commitment
Funding for growth and future profits
Write off periodic and abnormal losses

32
Q

Standarised approach to the measurement of the capital adequacy of banks.

A

Basel I

33
Q

Highest quality capital

A

Tier 1

34
Q

Comprises ate least half of a banks minimum requires capital

A

Tier 1

35
Q

Supplementary capital

A

Tier 2

36
Q

Tier 2: Upper

A

Permanent elements and hybrid capital instruments

37
Q

Tier 2: Lower

A

Non-permanent elements, limited life instruments.

38
Q

Capital accord

A

Basel II

39
Q

Defines the minimum capital adequacy required by a bank

A

Basel II

40
Q

Elements of Basel II

A
  • Credit risk of a banks assets and OBS business
  • Market risk of banks trading activities
  • Operational risks of banks business operations
  • Form and quality of capital held to support exposures
  • Risk identification, measurement and management process adopted
  • Transparency through accumulation and reporting of information
41
Q

Basel II minimum risk-based capital ratio and Tier 1

A

8%

4% held by Tier 1

42
Q

Pillar 1 risks

A

Credit risk
Operational risk
Market risk

43
Q

Credit risk

A

Risk that borrower won’t meet commitments when due.

44
Q

Risk weight for: notes and coins, claims against central governments and central banks

A

0%

45
Q

Risk weight for: claims against local governments, domestic banks and international banks

A

20%

46
Q

Risk weight for: loans secured by residential mortgages

A

50%

47
Q

Risk weight for: all other assets and claims against counterparties

A

100%

48
Q

Operational risk

A

Risk of loss from inadequate or failed internal processes.

49
Q

Market risk

A

Risk of changes in the market conditions.

50
Q

Measure the market risk

A

VaR

51
Q

VaR

A

Statistical probability model that measures financial risk exposures.

52
Q

Pillar 1

A

Capital adequacy

53
Q

Pillar 2

A

Supervisory review of capital adequacy

54
Q

Pillar 2 principles

A

1) Assess overall capital adequacy en relation with risk profile.
2) Review banks internal capital adequacy strategies.
3) Expect banks to operate above the minimum regulatory capital ratio.
4) Intervene at an early stage to prevent capital falling below the minimum levels.

55
Q

Pillar 3

A

Market discipline

56
Q

Intended to ensure banks have sufficient capital to support all risks and encourage improved risk management policies.

A

Pillar 2

57
Q

Develop disclosure that allows market to asses information on the capital adequacy of an institution.

A

Pillar 3

58
Q

Pillar 3 principle

A

Transparency of an institutions risk exposure, risk management and capital adequacy.

59
Q

Enhances capital adequacy requirements

A

Basel III

60
Q

Basel II minimum risk-based capital ratio and Tier 1

A

8%

6% by Tield 1 (4% in Basel II)

FINS1612 (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions