SEMESTER SPRING 2014

MONEY & BANKING (MGT411)

ASSIGNMENT NO.02

DUE DATE: 31ST JULY 2014 MARKS: 10

Learning Objectives: This activity aims to enable the students to get an understanding about
the commercial banks’ objectives.

 Maximizing Profitability
 Minimizing Liquidity Risk
 Contradictory nature of these objectives

Learning Outcomes: After going through this activity, the students would be able to
understand the conflicting objectives of commercial banks and how banks can operate by
minimizing such mismatch.

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

IMPORTANT:
24 hours extra / grace period after the due date is usually available to overcome uploading
difficulties. This extra time should only be used to meet the emergencies and above mentioned
due dates should always be treated as final to avoid any inconvenience.

OTHER INSTRUCTIONS:
DEADLINE:
 Make sure to upload the solution file before the due date on VULMS.
 Any submission made via email after the due date will not be accepted.

FORMATTING GUIDELINES:
 Use the font style “Times New Roman” or “Arial” and font size “12”.
 It is advised to compose your document in MS-Word format.
 You may also compose your assignment in Open Office format.
 Use black and blue font colors only.
REFERENCING GUIDELINES:
 Use APA style for referencing and citation. For guidance search “APA reference style” in
Google and read various website containing information for better understanding or visit
http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html

RULES FOR MARKING

Please note that your assignment will not be accepted, if:
 It is submitted after the due date.
 The file you uploaded does not open or is corrupt.
 It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF
etc.

Note related to load shedding: Please be proactive 

 
Dear students! 

As you know that Post Mid‐Term semester activities have been started and load 
shedding problem is also prevailing in our country now a days. Keeping in view 
the fact, you all are advised to post your activities as early as possible without 
waiting  for  the  due  date.  For  your  convenience;  activity  schedule  has  already 
been uploaded on VULMS for the current semester, therefore no excuse will be 
entertained after due date of assignments, quizzes or GDBs.