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Tutorial 2

The document discusses the role of commercial banks in the economy, emphasizing their evolution beyond basic deposit and loan services. It poses discussion questions regarding the functions of commercial versus investment banks, the mechanics of overdraft facilities, interest rate differences for secured versus unsecured loans, and the distinctions between Islamic and conventional banks. Additionally, it includes a calculation exercise for the Net Interest Margin (NIM) of two banks to assess their efficiency.

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Jermaine Ray Ananth
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12 views2 pages

Tutorial 2

The document discusses the role of commercial banks in the economy, emphasizing their evolution beyond basic deposit and loan services. It poses discussion questions regarding the functions of commercial versus investment banks, the mechanics of overdraft facilities, interest rate differences for secured versus unsecured loans, and the distinctions between Islamic and conventional banks. Additionally, it includes a calculation exercise for the Net Interest Margin (NIM) of two banks to assess their efficiency.

Uploaded by

Jermaine Ray Ananth
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

FIN 2024 Financial Institutions and

Markets
Tutorial 2 Financial Institutions – Banks (1)
Discussion Questions:
Commercial banks are usually the backbone of an economy in terms of the circulation of money.
They provide the main avenue source to store money, as well as to borrow money in an
economy. However, they have come far from being a basic deposit and loan provider.

In your opinion, why do banks have (or want) to go the extra mile to provide more than basic
banking services?

Short Discussions
1) Discuss the different functions of commercial and investment banks by looking at how
they generate income. Complement your answers by looking at how are they important
to the economy.
2) Discuss how an overdraft facility works in providing financing to clients through current
accounts. Discuss the types of clients who would benefit from an overdraft facility and
provide an example of how would it be useful in a business scenario.
3) Discuss why commercial banks charge higher interest rates to borrowers of unsecured
loans in comparison to secured loans.
4) Discuss how Islamic banks differ in comparison to conventional banks. Are their
functions similar?
5) Calculate the NIM of the two banks below:

ABC Bank
Interest Income $15.5 billion
Interest Expense $7.2 billion
Total Assets $290 billion
DEF Bank
Interest Income $6.2 billion
Interest Expense $3.1 billion
Total Assets $90 billion

1
Which one has a higher NIM? What is the significance of the comparison? Who is more
efficient?

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