Theory questions based on ratio analysis.

1.Explain the difference between bank solvency and bank liquidity.

2.From the point of view of an asset manager of a commercial bank, discuss the tradeoffs among the objectives of safety, liquidity, and profitability.

3.What is meant by the term liability management?  Discuss the instruments that banks use in liability management.  What are the advantages and potential pitfalls of aggressive use of liability management for commercial banks?

4.A large bank in your community has been contacted about participating in an attractive large syndicated loan arrangement.  Your bank has been invited to participate but does not have enough excess reserves to meet the terms of the agreement.  How might your bank raise the funds to participate in the deal?
a.Through asset management?
b.Through liability management?

5.Community Bank has total assets of $600 million, total liabilities of $564 million, and earned profits this year of $6 million.  Calculate Community Bank's:
a.Rate of return on total assets      
b.Equity multiplier
c. Rate of return on capital