• The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
Assignment Question(s):(Marks 5)
1) For a bank to accept credit risk, it must expect to be paid either interest at a sufficiently large premium above the risk-free rate or an actuarially fair fee. The required credit risk premium or fee depends upon four determinants. Explain these determinants in detail. (1.5 Marks)
2) SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date. Fair Value Accounting is argued to be conceptually and practically preferable to Amortized Cost Accounting for most financial instruments. But there are some arguments that are against fair value accounting. Understanding these arguments are important because they speak directly to the strength and weakness of fair value accounting. You are required to discuss these arguments in detail. (2 Marks)
3) Mortgage banks are exposed to interest rate risk on their mortgage-related asset through prepayment and discounting effects that are not entirely distinct. Discuss the Prepayment and Discounting Effects of Mortgage Banks in detail. (1.5 Marks)
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