I. Ratio Analysis
a. Calculate the Profitability ratios (ratios 1 through 15 in the Ratio Analysis worksheet) for Q1 through Q4. Recall, in Risk Report 1, you calculated these ratios for Q1 and Q2. (see additional instructions for the ratio analysis on the next page)
b. In your report, discuss your banks profitability, with a focus on changes since your last report (which was through Q2). Include a discussion of the decomposition of ROE, identifying the drivers of your banks expense ratio, asset utilization, and the composition(mix) and volume effects on interest income and interest expense (see the last page of this document for that decomposition). Also, include a discussion of aggregate profitability measures: net interest margin, earnings spread, efficiency, and burden.
c. Also, calculate the Credit Risk (16 through 19), Market Risk (24 and 25), Earnings Risk (27 through 29), and Interest Rate Risk (26) ratios (in the Ratio Analysis worksheet) for Q0 through Q4.
d. In your report, discuss your banks performance related to credit risk, market risk, earnings risk, and interest rate risk.II. GAP Analysis
a. Using the Maturity Gap Report in ProBanker, analyze your banks interest rate risk.
b. In your report discuss your GAP analysis. Be sure to include a discussion of how your Net Interest Income (NII) will change if rates increase or decrease by 1%. Also, include a discussion of whether your bank should increase or decrease its GAP if interest rates are expected to decrease in the near future.III. Plan
a. In your report, briefly discuss the changes you plan to make to improve profitability or maintain your position as the leading bank in the competitive simulation game.Include the Profitability, Credit Risk, Market Risk, Earnings Risk, and Interest Rate Risk Ratios, and the GAP Analysis tables as an appendix.Recommended length is no more than 2 pages, 12 point font, line spacing = 1.5, margins 1
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