Objectives of the investment portfolio A bank's investment portfolio differs markedly from a trading account as investment securities are held to meet one of six general objectives: 1.Safety or preservation of capital 2.Liquidity 3.Yield 4.Credit risk diversification 5.Help in manage interest rate risk exposure 6.Assist in meeting pledging requirements 蔺卧的资土号
Objectives of the investment Objectives of the investment portfolio portfolio A bank’s investment portfolio differs markedly from a trading account as investment securities are held to meet one of six general objectives: 1. Safety or preservation of capital 2. Liquidity 3. Yield 4. Credit risk diversification 5. Help in manage interest rate risk exposure 6. Assist in meeting pledging requirements
Accounting for investment securities ▣Held to Maturity: ■ Securities purchased with the intent to hold to final maturity ▣Available for Sale: ■ Securities that are not classified in either of previous categories ▣Trading Securities purchased with the intent to sell them in the near term 麓的贫香小手
Accounting for investment Accounting for investment securities securities Held to Maturity: Securities purchased with the intent to hold to final maturity Available for Sale: Securities that are not classified in either of previous categories Trading: Securities purchased with the intent to sell them in the near term
The primary impact of FASB 115 is: A bank's net income and equity capital position will be more volatile when securities are accounted for in market value terms The distinction between motives is important because of account treatment The difference between market value and par value equals the unrealized gain or loss on the security Mkt value par value unrealized gain (loss) 蔺行贺影小号
The primary impact of FASB The primary impact of FASB 115 is: 115 is: A bank’s net income and equity capital position will be more volatile when securities are accounted for in market value terms The distinction between motives is important because of account treatment The difference between market value and par value equals the unrealized gain or loss on the security Mkt value - par value = unrealized gain (loss)
Safety or preservation of capital A primary objective is to p preserve capital by purchasing securities when there is only a small risk of principal loss. Regulators encourage this policy by requiring that banks concentrate their holdings in investment grade securities,those rated Baa or higher. 的资5+号
Safety or preservation of Safety or preservation of capital capital A primary objective is to preserve capital by purchasing securities when there is only a small risk of principal loss. Regulators encourage this policy by requiring that banks concentrate their holdings in investment grade securities, those rated Baa or higher
Liquidity Commercial banks purchase debt securities to help meet liquidity requirements. Securities with maturities under one year can be readily sold for cash near par value and are classified as liquid investments. Liquid securities are often viewed as only those which can be sold at a gain, regardless of the remaining term to maturity,credit quality,and issue size. 的资5土号
Liquidity Liquidity Commercial banks purchase debt securities to help meet liquidity requirements. Securities with maturities under one year can be readily sold for cash near par value and are classified as liquid investments. Liquid securities are often viewed as only those which can be sold at a gain, regardless of the remaining term to maturity, credit quality, and issue size