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MGT411 Money & Banking Assignment 2 Solution Spring 2014

Assignment:
The two-fold objective for any commercial bank is to “Maximize Liquidity (for depositors)” and “Maximize Profitability (for shareholders)”. But there is a trade-off between them, if one increases the other decreases. For liquidity, if a bank holds high reserves then it will have less investment, earn low profit and low dividend for its share holders. For profit maximization, if a bank keeps on investing its funds, then it will be difficult to meet the cash withdrawals of depositors. Now days, banks face ups and downs in meeting these objectives. A good bank should focus on “portfolio management”: how the assets and liabilities are to be managed so that the profit should be maximized and how to bring together these two inconsistent objectives. This need experienced banking professionals to analyze situation, focus on objectives and opt a portfolio: balanced & diversified.
In Pakistan, Faysal bank and UBL are two of the commercial banks. Faysal Bank Limited was incorporated in Pakistan on 1994 as a public Limited company. Faysal Bank has more than 256 branches in over 80 cities. Faysal Bank ambition is to provide par excellence services to its customers while meeting their financial needs. UBL was incorporated in 1959.UBL has kept pace with the changing needs of times. Keeping the tradition of innovative alive, it introduced Pakistan’s first credit card, the UNICARD and left its mark by launching the Pak Rupees Travelers cheques. Now go to your LMS interface and download a “RAR file: MGT411 Assignment 2 SPR14.rar” (includes the 3 files mentioned below), uploaded in the “Downloads” tab. Get this file downloaded, extract data and solve the assignment using the data of Financial Year: 2013:
 Faysal Bank Financial Statements.pdf
 UBL Financial Statements.pdf
 Reserve Ratio.pdf
Requirements:
Question 1:
Compare the satisfaction level (in relation to the objective) of depositors of these two banks. Which bank is in a good position? (Calculation: 3 marks + Comments: 2 marks)
Hint:
 Reserves include “In hand local currency and all the accounts which are kept with the
State bank of Pakistan”.
 Checkable deposits include “Customers’ current accounts” only.
 Depositors’ satisfaction level can be found out by Reserve Ratio.
Question 2:
Trade-off actually exists or not between the Liquidity and Profitability (using variables: Assets and Equity). Comment
(Calculation: 3 marks + Comments: 2 marks)
Note: Show Complete Workings & Calculations

 

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