FİNANSAL PİYASALAR VE KURUMLAR - Deneme Sınavı - 12

LSE is located in London, which is the financial center of the world, and it is the largest stock market in Europe.

A call option is in the money, if the market price is above the strike price. A call option is out of the money, if the market price is below the strike price. A call or put option is at the money, if the market price is equal to the strike price. A put option is in the money, if the market price is below the strike price. A put option is out of the money, if the market price is above the strike price.

Almost all multinational corporations use options as a tool to manage their exposure to currency risk, and exchange rates are the underlying assets in their case.

Credit unions are depository financial institutions.

Asymetric information is the main reason for indirect finance, since the funds of savers are transferred to borrowers thorugh financial intermediaries in indirect finance model.

Commercial banks are able to provide lending to companies at a relatively low rate of return because of the economies of scale they can enjoy compared with the primary investor. These economies of scale include:

• Efficiencies in gathering information on the riskiness of lending to a particular firm and subsequent monitoring
• Risk spreading across a large number of borrowers 
• Low transaction costs due to standardized securities
• A regular flow of liquidity through deposits or borrowings.

Business lines in the commercial banking industry can be classified as Retail Banking and Corporate Banking. Retail banking mainly covers individuals and includes financial services such as credit cards and consumer loans as well as mortgages. It also covers very small enterprises, such as those of physicians or home services. Corporate banking transactions cover large businesses and include financial services like overnight loans, short-term loans, revolving facilities, term loans, committed lines of credit or large commercial and industrial loans.

An asset-backed security (ABS) is a financial security such as a bond or note, which is collateralized by a pool of assets such as loans, leases, credit card debt, royalties, or receivables. CDOs are an example of ABSs as the definition of the term CDO, given in the question, indicates.

The primary source of funds for commercial banks are deposits, whereas the primary use of funds is loans. Besides deposits, other liabilities or sources of funds for commercial banks include borrowings from other financial institutions.

The interbank money market is a market, in which banks extend loans to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate.

Equity Capital (Net worth) = Total Assets – Total Liabilities. Therefore, if the net worth of the bank is 2,6 bn USD, the eqity capital of the banks also equals to 2.6 bn USD.

Lent loans in the interbank markets are assets for a bank whereas the borrowed loans in the interbank markets are liabilities.

Commercial banks use the Gap analysis and Duration analysis to measure interest rate risk. Changes in market interest rates affect only interest rate-sensitive assets and liabilities. The main logic behind these concepts is the fact that interestearning assets and interest-bearing liabilities exhibit different sensitivities to changes in market rates.

Retail banking mainly covers individuals and includes financial services such as credit cards and consumer loans as well as mortgages.

Corporate banking transactions cover large businesses and include financial services like overnight loans, short-term loans, revolving facilities, term loans, committed lines of credit or large commercial and industrial loans.

An asset-backed security (ABS) is a financial security such as a bond or note, which is collateralized by a pool of assets such as loans, leases, credit card debt, royalties, or receivables.

The interbank money market is a market, in which banks extend loans to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate.

Equity capital or net worth of a commercial bank is the excess of assets over liabilities.

The most important assets of a commercial bank can be categorized as follows:

• Loans

• Securities

• Cash Assets

• Fixed Assets

A commercial bank can earn profit if its revenues exceed its expenses. The main sources of revenue in the form of interest revenue, commissions and fees for a commercial bank are as follows:

• Granting loans

• Investing in marketable securities

• Providing credit cards and debit cards

• Servicing deposit accounts

• Providing financial advice

• Providing wealth management services

• Carrying out foreign exchange

The expenses of a commercial bank in the form of interest expense and costs arise mainly from the following:

• Collecting deposits

• Borrowings

• Providing financial services