During the past couple of decades, financial institutions have sharply expanded their off-balance sheet activities. This trend has been fostered by the stepped-up pace of financial innovation.
QUESTION Savings accounts are usually classified as cash on the balance sheet 15 answers Subjects Arts and Humanities Languages Math Science Social Science Other Features Quizlet Live Quizlet Learn
In fact, the increase in the variety of financial services and products offered by financial intermediaries has impacted not just the assets and liability side of their balance sheets but also the off-balance sheet items as well. These keywords were added by machine and not by the authors.
Commercial banks are not allowed to invest in a.Treasury securities. b.Freddie Mac securities. c.Fannie Mae securities. d.Banks can invest in all securities mentioned above. true The bank holding company structure allows more flexibility to borrow funds, issue stock, repurchase the company's own stock, and acquire other firms. a. True b. False
Off-balance sheet activities include items such as loan commitments, letters of credit, and revolving underwriting facilities.
Off-balance-sheet activities like fees, loan sales, and derivatives trading help banks to manage their interest rate risk by providing them with income that is not based on assets (and hence is off the balance sheet).
An operating lease, used in off-balance sheet financing (OBSF), is a good example of a common off-balance sheet item.
Off-balance-sheet items are contingent assets or liabilities such as unused commitments, letters of credit, and derivatives. These items may expose institutions to credit risk, liquidity risk, or counterparty risk, which is not reflected on the sector's balance sheet reported on table L.
By engaging in OBS activities, besides providing high earnings, banks can avoid regulatory costs or taxes since reserve requirements and deposit insurance premiums are not imposed on OBS activities.
The primary risk to OBS activities on the asset side of the bank involves the credit risk of the borrower. In many cases the borrower will not utilize the commitment of the bank until the borrower faces a financial problem that may alter the credit worthiness of the borrower.
Start studying Finance 301 Chapter 17. Learn vocabulary, terms, and more with flashcards, games, and other study tools.
Start studying FIN 301 chap 17 part 1. Learn vocabulary, terms, and more with flashcards, games, and other study tools.
A) The primary credit lending rate is set by the President of the United States.
A _______ CD is a time deposit offered by some large banks to corporations, with a specific maturity date, minimum deposit of $100,000 or more, and a secondary market.
the banking industry has become less concentrated in recent years.
Off-balance sheet (OBS) items is a term for assets or liabilities that do not appear on a company's balance sheet. Although not recorded on the balance sheet, they are still assets and liabilities of the company. Off-balance sheet items are typically those not owned by or are a direct obligation of the company. For example, when loans are securitized and sold off as investments, the secured debt is often kept off the bank's books. Prior to a change in accounting rules that brought obligations relating to most significant operating leases onto the balance sheet, an operating lease was one of the most common off-balance items.
Off-balance sheet items are an important concern for investors when assessing a company's financial health. Off-balance sheet items are often difficult to identify and track within a company's financial statements because they often only appear in the accompanying notes. Also, of concern is some off-balance sheet items have the potential to become hidden liabilities. For example, collateralized debt obligations (CDO) can become toxic assets, assets that can suddenly become almost completely illiquid, before investors are aware of the company's financial exposure.
An OBS operating lease is one in which the lessor retains the leased asset on its balance sheet. The company leasing the asset only accounts for the monthly rental payments and other fees associated with the rental rather than listing the asset and corresponding liability on its own balance sheet.At the end of the lease term, the lessee generally has the opportunity to purchase the asset at a drastically reduced price.
Off-balance sheet (OBS) items is a term for assets or liabilities that do not appear on a company's balance sheet. Although not recorded on the balance sheet, they are still assets and liabilities of the company. Off-balance sheet items are typically those not owned by or are a direct obligation of the company.
Off-balance sheet (OBS) items are an accounting practice whereby a company does not include a liability on its balance sheet.
This asset category is reserved for funds that have not yet been received from customers, so the possibility of default is high. Instead of listing this risk-laden asset on its own balance sheet, companies can essentially sell this asset to another company, called a factor, which then acquires the risk associated with the asset. The factor pays the company a percentage of the total value of all AR upfront and takes care of collection. Once customers have paid up, the factor pays the company the balance due minus a fee for services rendered. In this way, a business can collect what is owed while outsourcing the risk of default.
The company solves its financing problem by using a subsidiary or special purpose entity (SPE), which purchases the hardware and then leases it to the company through an operating lease while legal ownership is retained by the separate entity. The company must only record the lease expense on its financial statements.
A) The primary credit lending rate is set by the President of the United States.
A _______ CD is a time deposit offered by some large banks to corporations, with a specific maturity date, minimum deposit of $100,000 or more, and a secondary market.
the banking industry has become less concentrated in recent years.