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Banking and Finance bank3011 Assignment

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Assignment:

The 2020 annual report of the Commonwealth Bank of Australia (CBA) is available at:

https://www.commbank.com.au/content/dam/commbank/about- us/shareholders/pdfs/results/fy20/cba-2020-annual-report-print.pdf. Carefully examine the annual report and answer the following questions. To answer these questions, please consult the relevant concepts in the lecture materials and specified financial report notes.

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Question 1: Industry analysis (Notes to the financial statements, Notes 3.1 & 3.2) (25 marks)

  1. (a)  Calculate the duration using Macalays Duration of ‘Gross Loans, bills discounted and other receivables’ of CBA for the 2020 Financial year. (For each maturity period, use the minimum maturity. For instance, assume all loans maturing between 1 and 5 years have a maturity of 1 year for this exercise). (8 marks)
  2. (b)  Repeat (a) for the 2019 Financial year. (5 marks)
  3. (c)  Compare part (a) and part (b). Explain changes, if any, of duration between 2019 and 2020. (5 marks)
  4. (d)  Identify the industy lendings with the longest and the shortest duration. What are the inherent risk of such a pattern and how should this be managed? (7 marks)

Question 2: Market risk (Notes to the financial statements, Note 9.3) (25 marks)

  1. (a)  Estimate CBA’s 30-day Total market risk VaR at the top 5% worst case as at June 30 2020. (9 marks)
  2. (b)  On page 228 of Notes 9.3, the last table provides two types of VaRs for the 2020 Financial Year. One is the year average VaR for the period ended at 30 June 2020. The other is the VaR as at 30 June 2020. The difference captures the current market risk as at 30 June 2020 versus the average risk in the past whole year. Compare the traded market risk VaRs for average June 2020 and as at June 2020. Discuss the changes in the following market risk conditions:

(1) Interest rate risk (2) Forex risk, and (3) Credit risk. (9 marks)

  • (c)  Read through page 229 of Non-traded market risk section and explain why the interest rate risk for the 2020 financial year is higher than the interest rate risk for the 2019 financial year. (7 marks)
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