• April 21st, 2016

Financial Institution

Paper, Order, or Assignment Requirements

1) How do banks use fed funds as an asset and as liability? Use an example for each assuming a fed funds rate of 25 basis points and  a  $ 100 million position.

2) An investment bank is hired to underwrite an issue of 10 million shares of XYZ corporation, on a best efforts basis. The IB charges a commission of .50 per share. If it sells all 10 million at $10.50 per share, how much does the IB get? How much does XYZ get? If it can only get $7.50 per share, how much does the IB get? How much does XYZ get?

What if it is done on a firm commitment basis, no per share commission. The IB agrees to buy 10 million shares at $9.00 per share. The IB sells all of it to the market at $10.00 per share. What does the IB get? What does XYZ get?

Explain why an IB would choose a best efforts versus a firm commitment underwriting. Why would XYZ choose a firm commitment?


3) Explain the requirements for “Stress tests” under the CCAR provisions of the Dodd Frank Act.

4) Explain, using an example, how securities firms use repurchase agreements as their major source of funding. Why do they use these as a source of funds?


5)In what ways could the implementation of the Volcker rule reduce a systematic risk? In what ways could it increase systematic risk?

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