The head of the division also mentions that he has to do a presentation about liquidity management and technological advancements to Unibank’s board of directors. Therefore, please provide him with information about the following issues to assist with his presentation:
a. Distinguish between loan sales with and without recourse, and why would financial institutions want to sell loans with recourse? (1 mark)
b. Explain how loan sales can leave financial institutions exposed to contingent interest rate risks (1 mark).
c. Briefly explain what a contagious run is, some of the potentially serious adverse social welfare effects of a contagious run, and whether all types of financial institutions face the same risk of contagious runs (1 mark).
d. What are the advantage and disadvantages of technological advancements from the bank’s perspective? Use examples where appropriate (4 marks).
e. Briefly explain what the economies of scale and economies of scope mean in regards to the cost structure that technology could bring to the bank (2 marks).
