1)i) Write down 3 kinds of commercial bank charters and point out which federal agency has main regulatory responsibility for each.
ii) Write down 3 broad categories of consumer protection laws in banking and provide suitable example of each type.
iii) What are two methods in which equity capital reduces bank risk?
iv) Write down 3 reasons why banks are regulated.
v) When is a bank “critically undercapitalized” and write down the consequences?
2) Assume that each of 2 investments has a 4% chance of loss of $10 million, a 2% chance of loss of $1 million, and a 94% chance of a profit of $1 million. They are independent of each other.
i) Determine VaRfor one of investments when confidence level is= 95%?
ii) Determine expected shortfall when confidence level is= 95%?
iii) Determine VaRfor a portfolio consisting of two investments when confidence level is= 95%?
iv) Find out the expected shortfall for portfolio consisting of two investments when confidence level is= 95%?
v) Illustarte that, in this example, VaRdoes not satisfy subadditivity condition while expected shortfall does.