You are a successful business analyst and are looking to invest in either a commercial bank or mutual fund. You have identified the following questions that need to be answered in order for you to proceed with your investment.
Obtain the annual report of a commercial bank. The annual report will allow you to relate the theory that you have learned to the particular financial institution of concern. Also, obtain a prospectus of a specific mutual fund that interests you.
Scenario:
You are a successful business analyst and are looking to invest in either a commercial bank or mutual fund. You have identified the following questions that need to be answered in order for you to proceed with your investment. Explain which one - commercial bank or mutual fund - you will invest your money in. If you invest in both, explain why. Your analysis and conclusion must be based on the answers to the questions listed below.
Your paper should be 7-10 pages, double-spaced, including references (each section is worth 20 points for a total of 100 points for the project).
a US Commercial Bank:Commercial Bank Operations:
Identify the types of deposits that the Commercial Bank uses to obtain most of its funds
(looking for main sources of funds by the bank)
Identify the main uses of funds by the bank
Summarize any statements made by the bank in its annual report about how recent regulations will affect its performance.
Does it appear that the bank is attempting to enter the securities industry by offering securities services? If so, explain how.
Does it appear that the bank is attempting to enter the insurance industry by offering insurance services? If so, explain how.
Commercial Bank Management:
Assess the bank’s balance sheet as well as any comments in its annual report about the gap between its rate sensitive assets and its rate sensitive liabilities. Does it appear that the bank has a positive gap or a negative gap?
Does the bank use any methods to reduce its gap and therefore reduce its exposure to interest rate risk?
Summarize any statements made by the bank in its annual report about how it attempts to limit its exposure to credit risk on the loans it provides.
Commercial Bank Performance:
Determine the bank’s net interest margin.
Determine the bank’s return on assets
Determine the bank’s return on equity
Mutual Funds:
What is the investment objective of the Mutual Fund? Do you consider this mutual fund to have low risk, moderate risk, or high risk?
What was the return on the mutual fund last year? What was the average annual return over the last three years?
What is a key economic factor that influences the return on this mutual fund? (is it influenced by US stock market conditions?, by interest rates?, foreign market conditions?, foreign interest rates?)
Must any fees be paid when buying or selling this mutual fund?
What was the expense for this mutual fund over the last year? Does this ratio seem high to you?
Summary/Conclusion
Based on the information and data collected, detail whether you invested the money in a commercial bank or mutual fund. If you invested in both, explain why. Your analysis must reference the questions above.
Your paper should be 7-10 pages, double-spaced, including references (each section is worth 20 points for a total of 100 points for the project).