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CHAPTER 10
THE INVESTMENT FUNCTION IN BANKING AND ment Maturity Strategies
A. The Ladder or Spaced-Maturity Policy
B. The Front-End Load Maturity Policy
C. The Back-End Load Maturity Policy
D. The Barbell Strategy
E. The Rate E*pectations Approach
VII. Maturity Management Tools
A. The Yield Curve
B. Duration
VIII. Summary of the Chapter
Concept Checks
10-1. Why do banks and institutions choose to devote a significant portion of their assets to investment securities"
Investments perform many different roles that act as a necessary plement to the advantages loans provide. Investments generally have less credit risk than loans, allow the bank or thrift institution to diversify into different localities than most of its loans permit, provide additional liquid reserves in case more cash is needed, provide collateral as called for by law and regulation to back government deposits, help to stabilize bank ine over the business cycle, and aid banks in reducing their e*posure to ta*es.
10-2. What key roles do investments play in the management of a bank or other depository institution"
See answer to 10-1
10-3. What are the principal money market and capital market instruments available to institutions today" What are their most important characteristics"
Banks purchase a wide range of investment securities. The principal money market instruments available to banks today are Treasury bills, federal agency securities, CD's issued by other depository institutions, Eurodollar deposits, bankers' acceptances, mercial paper, and short-term municipal obligations. The mon characteristics of most these instruments is their safety and high marketability. Capital market instruments available to banks include Treasury notes and bonds, state and local government notes and bonds, mortgage-backed securities, and corporate notes and bonds. The characteristics of these securities is their long run