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Questions and Answers
Net Interest income is:
Net Interest income is:
- Interest earned on loans and advances only
- Total interest earned on advances and investment
- Difference between interest earned and interest paid (correct)
- Interest earned on investments only
Investment made by a bank in its subsidiary is considered in the following category in its balance sheet:
Investment made by a bank in its subsidiary is considered in the following category in its balance sheet:
- Other assets
- Investments (correct)
- Unsecured advances
- Secured advances
Net Interest Income (NII) is calculated using the following formula:
Net Interest Income (NII) is calculated using the following formula:
- Total income - Total expenses
- Interest income - Interest expenses (correct)
- Total income - Interest expenses
- Interest income - Total expenses
N.I.M. calculated using the following formula:
N.I.M. calculated using the following formula:
Economic Equity Ratio is used to assess sustenance capacity of the bank. It is calculated using the formula:
Economic Equity Ratio is used to assess sustenance capacity of the bank. It is calculated using the formula:
Flashcards
Net Interest Income (NII)
Net Interest Income (NII)
The difference between the interest a bank earns and the interest it pays out.
Investment in Subsidiary
Investment in Subsidiary
A bank's investment in its subsidiary company.
NII Calculation
NII Calculation
Interest income minus interest expenses.
Net Interest Margin (NIM)
Net Interest Margin (NIM)
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Economic Equity Ratio
Economic Equity Ratio
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Study Notes
Net Interest Income (NII)
- Represents the difference between the income generated from a bank's interest-earning assets and the expenses associated with paying out interest on its liabilities.
- Serves as a key indicator of a bank's profitability from its core lending activities.
Investment in Subsidiaries
- Investments made by a bank in its subsidiaries are categorized under 'Investments' on the balance sheet.
- These investments help diversify the bank's portfolio and can provide additional revenue streams.
Calculation of Net Interest Income
- NII is calculated using the formula:
- NII = Interest Income - Interest Expense*
- This formula highlights the profitability of the bank's lending and investment activities minus the cost of funding.
Net Interest Margin (N.I.M.)
- N.I.M. measures the efficiency of a bank's investment and lending strategies relative to its net interest income.
- Calculated using the formula:
- N.I.M. = (Net Interest Income / Average Earning Assets) x 100*
- This ratio provides insights into the bank's ability to manage its assets effectively.
Economic Equity Ratio
- Used to assess the sustainability and financial stability of a bank.
- Calculated using the formula:
- Economic Equity Ratio = (Total Equity / Total Assets) x 100*
- A higher ratio indicates better solvency, showing that a larger proportion of assets is funded by equity rather than debt.
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