Does a depository bank usually operate in the short or long run?

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lttguastua

Business Finance

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1. Does a depository bank usually operate in the short or long run?

2. ROE and ROA

3. check clearing

4. Borrowing between banks

5. Camels

6. Classification of securities

7. Equity multiplier

8. future loan losses

9. liquidity of a bank

10. classficatioin of deposits as to risk.

answer this definition using your own word and using some example to explain this

every question at least 150 words

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Explanation & Answer

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1. Does a depository bank usually operate in the short or long run?
A depository bank is known to operate in long run. This is majorly because of some
reasons that is involved with locking a customer’s money for a longer period of time. Long term
deposit is usually involved with huge investments. Depository bank for example is able to let a
person to gain more due to huge interests that come along with locking money for a longer
period of time as offered to locking your money for a shorter period. The huge interests earn for
example within four year, is huge amount and hence a person is able to invest it in a business that
will earn him or her a huge income at the end. Depository banks, however encourages personnel
to deposit more as huge deposits yields higher interests. Operating in long-term basis is very
important as this encourages both the bank and the individuals to gain more from the deposits
they make.
2. ROE and ROA
Return on Equity (ROE) and Return on Assets (ROA) are the most two important degree
or measures in which the effectiveness of the management team of a company is evaluated in
terms of the activities that they are doing in bettering the company or the organization. This
majorly focuses on the management of the capital of the company. Return on equity is evaluated
by dividing the net income of the company by its shareholders equity. On the other hand, Return
on assets is evaluated by dividing the net income by the total assets in the company. In some
cases where the debt is absent, the total assets of the company and the equity of their
shareholders would be equal, and as result, both the ROE and ROA would be the same also.

Running Head: Business

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3. Check clearing
Check clearing basically refers to a situation or a process where funds are moved from
one account to another in order to settle some check payment. What happens in such a case is
that some amount is credited to a particular account, that is of deposit and on the other hand, the
same amount is also debited to the bank where withdrawal of the amount would be transacted. A
check is said to be cleared is a case when the bank receiving the check has already receive the
check that is from the bank where the write wrote it. In different cases, the time taken for the
check to be processed till it is all done much varies. Basically, it normally takes five days of
work for the check that is written to reach the receiver’s end. In some cases, some checks are not
honored. This may be due to insufficient amount in the account of the person writing the check.
4. Borrowing between banks
Borrowing between banks do happen globally. They are reserved funds that are borrowed
by different banks so that they can meet their requirements. There is a market that is known to be
the interbank lending where it extent its loans to other banks for some specified period of time.
Most loaning banks do have maturities that is usually a week or even less. Such kind of loans are
being made with respect to the interbank rate or the overnight rate with due respect to the loans
that their term is overnight. In some cases, for example, a bank has to have liquid assets that is
sufficient. This is a requirement as the bank should be able to meet the needs of its clients.
However, when the bank’s liquid assets is insufficient it has to seek some more money from the
interbank lenders so that in can be in a situation of settling the needs of its clients.

Running Head: Business

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5. CAMELS
CAMELS basically refers to five components of a condition of a bank that are greatly
accessed. This includes Capital adequacy, the Asset quality, the Management, the Earning and
finally Liquidity. Later on the sixth component was later on added which is Sensitivity towards
the market risk. CAMELS is an international system that is recognized and is used to rate various
financial institutions with respect to the six factors that is represented by the acronym. This
system of rating is used by the supervisory authorities of different banks. This authorities are
known to work by assigning each bank a particular score that is found on the scale. For example,
a capital trend is analyzed by assessing it using the capital adequacy it has. Moreover, examine
who check the institution also considered if the institution or the company comply hand-in-hand
with the regulations related to the risk-based of net-worth need or basically the requirements.
6. Classification of securities
Security on the basis of finance is known to be a certificate or even a financial instrument
which is known to have a monetary value. Security is moreover known to be traded. Depending
on a wider range of finance, securities have been classified into four different categories. This
includes the bond, preferred stock, common stock and finally the derivative securities. To begin
with bonds, they basically refer to income that are fixed and they have a maturity that is known
to be fixed. This type of security is known to have a date that is specified at which the firm has to
make payment involved with all the liabilities it has. Common stock does not have the maturity
period. This kind of security is known to exist all along as the existence of the corporation.
Preferred stock basically known to be hybrid security lies in-between the bond and the common
stock. The holders of this security have a claim on income belonging to the corporation that is
fixed. Finally, the derivative security includes the future contracts, options and warrants.

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7. Equity multiplier
It basically refers to a financial ratio that is leverage. It is used to measure the amount or
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