Reference no: EM132501105

BAF 421 Commercial Banking Management - Emirates College of Technology

Problem (1)

First Gulf Bank posts the following schedule of fees for its household and small-business transaction accounts:
• For average monthly account balances over $1,500, there is no monthly maintenance fee and no charge per check or other draft.
• For average monthly account balances of $1,000 to $1,500, a $2 monthly maintenance fee is assessed and there is a 10¢ charge per check or charge cleared.
• For average monthly account balances of less than $1,000, a $4 monthly maintenance fee is assessed and there is a 15¢ per check or per charge fee.
Required:
1. What form of deposit pricing is this?
2. What is First Gulf trying to accomplish with its pricing schedule?
3. Can you foresee any problems with this pricing plan?

Problem (2):

 Suppose that a customer holds a savings deposit in a savings bank for a year. The balance in the account stood at $2,000 for 180 days and $100 for the remaining days in the year. If the Savings bank paid this depositor $8.50 in interest earnings for the year, calculate the annual percentage yield (APY) did this customer receive?

Problem (3):

Explain the impact that budget deficits have on deposits, bank loans and interest rates.

Problem (4):

 In Bacone National Bank has structured its investment portfolio, which extends out to four-year maturities, so that it holds about $11 million each in one-year, two-year, three-year, and four-year securities. In contrast, Dunham National Bank and Trust holds $36 million in one- and two-year securities and about $30 million in 8- to 10-year maturities. What maturity strategy is each bank following?

Problem (5):

Suppose a bank has found bank-qualified municipal bonds which have a nominal gross rate of return of 8 percent and that it can borrow funds needed for this purchase at a rate of 6.25 percent. The bank is in the 35 percent tax bracket. What is the net after-tax return on this bond?