Untitled Quiz

A measure of the rate of return flowing to shareholders, approximating the net benefit stockholders receive from investing in the financial firm.

An indicator of managerial efficiency, showing how well management converts assets into net earnings.

Net Income divided by Total Equity Capital

Net Income divided by Total Assets

Surrogates for stock values, used when stock prices are unavailable for analysis of financial institutions.

The best indicator of a financial firm's performance, reflecting the market's evaluation of the firm's performance.

Profitability ratios used as a substitute for market-value indicators when stock prices are unavailable or not reflective.

Investor perception that the institution is less risky, leading to a lower equity risk premium.

Measures the difference between interest earned on assets and interest paid on liabilities, reflecting the bank's ability to manage earning assets and funding sources.

Calculated by dividing the difference between interest income and interest expense by total assets.

Measures the profitability generated from non-interest activities, such as fees and commissions.

Calculated by dividing non-interest revenues minus non-interest expenses by total assets.

Shows the efficiency of a financial firm in borrowing and lending money, reflecting the intensity of competition.

Calculated by subtracting the ratio of total interest expense to total interest-bearing liabilities from the ratio of total interest income to total earning assets.

Perceived uncertainty associated with a specific event, crucial for managers and regulators to manage.

Help analyze a financial firm's earnings performance, identify weaknesses, and suggest areas for improvement.

The possibility that a financial institution's loans will decrease in value or become worthless.

Assets, like loans, that are overdue for 90 days or more and no longer generate income.

Loans declared worthless and removed from the lender's books.

The danger of not having enough cash or borrowing power to meet customer demands, loan needs, and other financial obligations.

As this ratio rises, it signals an increase in credit risk for the financial institution, making it more likely to face financial difficulties.

A high ratio indicates that loans, which are risky assets, make up a large portion of the bank's assets, potentially putting deposits at greater risk.

A rising ratio indicates an increased reliance on loans, which are risky assets, potentially increasing the risk of loan defaults and impacting the financial health of the institution.

Both measures indicate how much a lender is setting aside to cover potential future loan losses. The annual provision reflects current charges against income, while the allowance represents the accumulated reserves for loan losses.

The risk that a financial institution's assets, liabilities, and net worth will lose value due to fluctuations in market rates or prices. This includes both price risk and interest rate risk.

The risk that the market value of a financial institution's assets, specifically bond portfolios and stockholders' equity, will decline due to sudden market price movements.

The impact of changing interest rates on a financial institution's profit margin. Rising interest rates can negatively impact profits.

The risk that the value of a financial institution's assets denominated in foreign currencies will decline, leading to a write-down on the balance sheet.

The risk that foreign governments may face domestic instability or conflict, jeopardizing their ability to repay debts owed to international lending institutions.

The risk associated with financial contracts that obligate a financial firm to perform in various ways but are not recorded on its balance sheet. This can lead to unexpected financial obligations.

Uncertainty regarding a financial institution's earnings due to failures in computer systems, errors, employee misconduct, natural disasters, or other unforeseen events.

A strategy financial firms use to control their funding sources by strategically managing the mix, cost, and volume of deposits and other borrowings.

A balanced approach to managing a financial institution's assets and liabilities to maximize profitability and control risk.

The process of coordinating a financial institution's management of assets and liabilities to achieve financial goals.

Optimizing the difference between the interest income earned on assets (loans) and the interest expense paid on liabilities (borrowings), aiming for a larger spread.

Fund management requires a financial institution to carefully manage both the assets (what they own) and the liabilities (how they fund those assets).

Coordinating the management of assets and liabilities to maximize the spread between revenues and costs while controlling risk.

A strategic approach to generating revenue from both assets and liabilities while controlling expenses from both sides of the balance sheet.

An extra charge added to interest rates on financial instruments that are difficult to sell quickly at a good price.

The risk that a borrower might repay a loan early, reducing the lender's potential return if interest rates decline.

A higher interest rate paid on longer-term loans and securities due to the increased risk of losses over the life of the loan.

When a lending institution's assets have a longer average maturity than its liabilities, potentially leading to higher earnings.

When a lending institution's liabilities have a longer average maturity than its assets, potentially leading to lower earnings.

A measure of the average time it takes to recover the funds invested in an asset, considering all future cash inflows and outflows.

Duration helps measure the sensitivity of an asset's market value to changes in interest rates, allowing financial institutions to manage interest rate risk.

A higher duration indicates greater sensitivity to interest rate changes, meaning the asset's value will fluctuate more with interest rate fluctuations.