UA FI 301 - Final Exam Study Guide (3 pages)

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Final Exam Study Guide



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F1 301 1st Edition Final Exam Study Guide Chapter 17 Demand of positive checking account what makes now checking account and money market checking accounts different from a normal checking account Some have minimum balances and you earn interest on them MMA Savings vs checking account you can write checks on checking account and you earn interest on savings account largest provider of funds for banks households sources of funds and uses of funds in banks working capital loan business operations term loan get a loan for anything such as a car or a house for a specified duration balloon notes are term loans balloon loan on real estate they will refinance after 3 5 or 7 years at end of term why do banks make consumer loan and issue credit cards to make higher returns want to diverse investments treasuries safer and provides liquidity Banks do not invest in stocks Bonds treasuries mortgage backed securities whats been happening to banks over past 15 years forming financial conglomerates larger in size smaller in quantity size they combined services such as buying insurance through them and invest with them Chapter 19 bank risk CHART liquidity risk dont have the money or cash to pay their interest they keep this cash in a vault and the federal reserve banks What causes this risk in banks is people withdrawing money which is called a bank run If they are making too many loans and they need to get more money They are most likely going to borrow money from another bank if this happens Low rate called called federal funds rate Securitization selling off of loans specifically mortgages A mortgage is a loan on real estate Can buy treasuries to solve this or minimum balance checking accounts Interest rate risk risk of fluctuating interest rates Risk of rising interest rates is worse they may not be able to pay their liabilities risk of falling rates are pre payment risk this means the banks make less interest Loans are very risky for them GAP formulas net interest margin big



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