Global Business Context (GBC):
Referral Coursework Task,
Academic year 2008/09
Hand-in deadline: 2 p.m. 17th August 2009
Overview
This referral task is asking you to demonstrate your understanding of a modern banking system and
its relationship with the broader economy.
The relevance of this task can not be understated and certainly the events of the last year need to be
understood by all level 1 students of business (irrespective of their present status as a ‘referral’
student). For this reason this referral task reflects well the general focus and aspirations of the
learning and assessment activities carried out in GBC during the last academic year – September
2008 to May 2009, which is both equitable and appropriate.
This referral task is made up of two equally weighted parts:
Part A: 37 short answer questions designed to test your understanding of bank balance sheets
and the role various banking ratios play in determining bank lending practices.
(50%)
Part B: A short essay (1,500 words max) exploring the link between the financial sector and the
real economy and the role government might play in shaping future financial events.
(50%)
The logic of breaking the referral task in to two parts (i.e. between Part A & B) transcends any desire
to stretch your abilities beyond those already demonstrated by GBC students who have successfully
completed their GBC assessment tasks. Rather it is my professional and personal opinion that
engagement with Part A will largely determine your success in Part B, and should see you
demonstrate a clear understanding of current economic and business events and debates - which is
the learning and assessment objective of GBC as a whole and one which applies to all GBC students.
To assist you with both parts an inter-active study guide: “Credit Crisis and Capital Ratios” created by
me is provided and you are encouraged to download this file and work your way through it before
attempting this assignment. Included in this Excel file is a PowerPoint presentation which outlines the
basic workings of a modern banking system, which you should also view before attempting this task.
Along with any previous lecture slides you have downloaded or the lecture notes you have made, you
should treat this Excel file as one of the principle learning resources needed to complete this task.
This file is constructed in Excel – Office 2003 version and it is your responsibility to use the
appropriate software that can read this particular format. Nevertheless, all UWE computers can
accommodate this file, as will any computer which has Microsoft Office installed, other software might
not be compatible, in particular Microsoft ‘Works’, or some of those found on Apple Mac computers. In
addition and to protect the integrity of the programming of this file it is password protected, therefore If
your computer has been fitted with specialist software it might not work as intended – if this is the case
you should make use of the UWE computer facilities.
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The referral task in more detail
Requirements for Part A (short questions)
The questions you are to answer for Part A are found on pages 7 to 10 of this document, these pages
should be printed out and your answers filled in by hand, these pages are to be submitted along
with your answer to Part B (Note: in contrast and in keeping with UWE assessment regulations, Part
B should be word processed). The questions found in Part A are similar (very similar) to those found
in the Excel file: “Credit Crisis and Capital Ratios”, it would therefore be very advisable to work through
this file before attempting the questions in Part A.
Requirements for Part B (essay)
The essay task is to answer these two related questions:
(i) In what ways will a fall in all bank capital ratios affect the general level of bank lending
and what impact is this likely to have on a given economy?
(ii) Should banks face stricter government regulation to ensure that problems in the
financial sector do not – in the future, adversely affect the real economy?
Each part is equally weighted but this does not apply when apportioning the number of words used in
each part - it is up to you to decide how you wish to apportion your word allocation.
You should, where relevant, use the Harvard Referencing system when citing other peoples work; to
this end see the BBS Study Skills web pages or those of the library if you are unsure what this entails.
Likewise your essay should include a bibliography of all the work you may have cited; again this
should be constructed using Harvard Referencing conventions (some general guidance on referencing
and the bibliography is offered below).
As noted above the word limit is 1,500 words (maximum, but not including the bibliography), each
page should be numbered (bottom right hand corner) and include your student number (placed in the
bottom left hand corner), likewise you should include the total word count at the end of your essay and
before the bibliography. In addition you should format the document using Ariel font size 10 and the
line spacing should be set to ‘1.5 lines’. Failure to meet any of these specific formatting
requirements will result in 5% being deducted from the over all mark.
Some general guidance to completing Part B(essay)
Part B (i)
1. It follows from the question that a careful explanation capital ratios needs to be offered – in
particular the ways in which such ratios can fall. To this end it is again strongly recommended
that you work through the inter-active Excel file provided.
2. Consider also the broader economic impact ill-considered lending or poor investments will
have if these decisions subsequently lead to a ‘write-down’ of bank assets and a reduction in
capital ratios.
3. Finally, and where appropriate support your answer with any evidence from recent media
reports that discuss the link between lending and overall economic performance (these
examples do not have to be confined to the UK but can include examples from around the
world).
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Part B (ii) (essay)
This part is asking you to provide a well informed and well argued recommendation concerning the
desirability of greater government regulation of bank lending practises or banking capital adequacy in
general. As to the nature of this regulation, well … this is up to you to ponder (i.e. given your
understanding of the banking sector and its relationship with the broader economy – what would you
do to ensure that the current credit crisis does not happen again?).
However, as with any regulation there are two things you should bear in mind, namely:
1. How feasible is such legislation (i.e. can it be enforced and policed?) and,
2. Who, besides banks, might be affected by such regulation?
As with Part A (i) above and if it is appropriate, cite and evaluate any recent media reports that discuss
the possibility of increased regulation of the banking system (again your examples do not need to be
confined to the UK experience).
The marking scheme for Part B
The advice and guidance set out above can also be taken as the indicative marking scheme that will
apply to your work (so keep this in mind when tackling the task).
General Guidance on referencing and compiling your bibliography
Citing a textbook
Generally when citing an author in the main body of your work, the Harvard system involves making a
note of the author’s name, the year of their publication, and the page number. A reference to a
definition of say the liquidity ratio might be made in the following way:
A bank’s liquidity ratio is the proportion of the bank’s total assets held in liquid form
or ready cash (Sloman, 2001, p. 326)
In the bibliography, this reference should be written as:
Sloman, J. 2001, Essentials of Economics, 2nd edition, Prentice Hall, Harlow, Essex England
Citing newspaper articles or a web address
Given the unfolding nature of the current credit – crisis most of your citations are likely to come from
newspaper & media articles. Thus when you are referring to a newspaper article where you know the
name of the author, simply state the author’s last name, newspaper, and date e.g.
…which like the major investment banks sold ABSs and CDOs based on their own lending (an
example is HBOS, see Connon, The Observer, 26/08/07).
In this case the bibliography entry would include, the author’s last name and first initial, the name of
the article (in single quotation marks), the newspaper, the date, and web address, and the time you
accessed the article, thus:
Connon, H, ‘Transatlantic storm hits Northern Rock’, The Observer, 26/08/07,
http://www.guardian.co.uk/business/2007/aug/26/9 Accessed 02/01/09, 16.48
Many newspaper articles do not offer the author’s name (often they attributed to a ‘staff reporter’), in
this case simply cite the newspaper and date. In the bibliography, show that the author is anonymous
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using Annon, followed by the article’s title, newspaper and date of publication (including the web
addressed if accessed on-line).
Citing a web site is also done in the same manner for instance:
Secondly, the bank can sell some if its investment assets (in particular its holdings of
Bonds and Bills), this option will however reduce the bank’s ability to earn future
returns. Finally, it can reduce its lending to private individuals (Kennedy,
MarketWatch.com, 15/05/08)
In this case the bibliography entry would be:
Kennedy, S. ‘Barclays profit falls, leaves capital options open’ MarketWatch.com, 05/05/2008
http://www.marketwatch.com/news/story/barclays-profit-falls-leaves-
capital/story.aspx?guid=%7BE71CA34E-4737-498F-A789-93D9A1377593%7D
(accessed 01/06/09 12:03)
You are at liberty to cite the Excel learning resource that accompanies this task, for example:
Allen D. (2009), identifies two ways in which a banking sector’s capital ratios can fall, one is
through external events (those beyond the control of banks) and the other, which can be seen as
internal to the banking sector…….
In this case the bibliography entry would be
Allen, D. “Credit Crisis and Capital Ratios” (2009), University of the West of England, Bristol,
England.
The bibliography
When using the Harvard system, the entries in the bibliography are listed by author and arranged
alphabetically. Thus if you have articles written by staff reporters (i.e. Annon) these would head the
bibliography, but would be listed in date order – newest first.
Hand-in arrangements: Hand-in deadline: 2 p.m. 17th August 2009
Students MUST place their assignments in the appropriate red assignment “post-boxes” located by
Cribbs Café on the 2B corridor between BBS Reception and the big lecture theatres 2B020/2B025.
The box will be labelled Global Business Context and David Allen.
BBS keeps to an extremely strict 2.00pm deadline (2.01 p.m. is counted as the next day).
Assignments put into the wrong post box will be treated as a late hand in.
Students must not attempt to hand in work directly to a lecturer or tutor or via email, on-time or
late.
Your mark
Overall, the mark you receive for this work will be calculated as your mark for Part A multiplied by your
mark for Part B, divided by 100. Thus if you achieve 80% in Part A and 60% in Part B your mark will
be:
(80 x 60) ÷ 100 = 46%
It follows that both parts need to be attempted in order to achieve a mark in this assignment (which is
in your best interest anyway).
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Plagiarism & Collusion in written/self-directed assessments
This section is included in all assessment briefings and has been written by the University. Please
read carefully the following definitions of collusion and plagiarism. These are serious offences and it is
very important that you know how to avoid them. The University procedures for dealing with
allegations of assessment offences are laid out in the UWE Student Handbook, and in the Academic
Regulations (E12a).
Definitions
Collusion includes:
a) presenting work as one’s own which is derived from unauthorised collaboration with others
b) assisting another person by giving substantial help with ideas or with text which are not then
acknowledged.
Plagiarism is a form of theft. It includes:
a) the quotation of another person’s words without quotation marks
b) the quotation of another person’s words or ideas without acknowledgement
c) the use of another person’s ideas without acknowledgement
d) the use of another person’s facts or experimental results without acknowledgement.
Some advice
Avoiding Collusion
Most collusion is unintentional. Students are often required to work on a topic or activity in groups and
then to produce individual work for assessment. They must be careful to follow the instructions
regarding the assessment. Some assessments may require the group to produce joint ideas or
proposals, whereas others might assign this initiative to the individual. Unless the instructions
specifically require a group report, students must produce their own written work without the help of
other people.
It is a normal part of the learning process for students to discuss ideas for written work with each
other. However, students should be cautious about lending essays, computer files or laboratory
reports to other students in order to avoid the danger of the second student producing an essay or
laboratory report similar to that of the first student. Discussion between students can be a good way of
learning: however, students should be careful to ensure that they think out and write the detail of their
essays/assignments by themselves.
Avoiding Assessment Offences
In order to produce good essays, assignments, etc, it is expected that students will base their ideas on
several sources and will quote from them. Plagiarism is often a result of poor academic practice rather
than a deliberate attempt to cheat (A very good and cheap (£1.00) guide on how to reference correctly
is available in the university bookshop). Good academic standards require that:
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a) any phrase or longer text which is taken from another author must be quoted precisely using
quotation marks and the bibliographical reference
b) where an author’s text is summarised the summary must be in the student’s own words.
Merely changing the order of words or using synonyms does not form an acceptable
summary
c) any facts, tables, diagrams or experimental results taken from another person must be
acknowledged and referenced
d) any ideas or conclusions taken from another person must be duly acknowledged and
referenced.
What are the penalties for cheating?
The University has a formal procedure for investigating allegations of various forms of cheating,
including collusion and plagiarism. A formal allegation of an "assessment offence" will be lodged and
then investigated. The possible penalties include exclusion from the University. It is therefore, in your
own interest to make sure that your work is always your own and that others do not use your work.
This does not mean that you should not discuss assignments with others on your programme, or
exchange ideas, but that the assignment you submit should be produced solely by you.
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Student Number
Part A: The role banking ratios play in determining bank lending practices.
Please print these pages out and fill in your answers and student number by hand, (please use legible
handwriting!) when complete; include these answers with your essay (Part B), submitting both pieces
of work by 2 p.m. 17th August 2009. All questions in Part A are worth 1 mark each, there are 37
questions in total. The questions are very similar to those found in the Excel file: “Credit Crisis and
Capital Ratios”, it would therefore be very advisable to work through this file before attempting these
questions.
Questions Q1 to Q7
The balance sheet below (balance sheet [A]) shows the Assets and Liabilities for an imaginary bank,
fill in the blank values for Risk-Adjusted Assets.
Risk
BALANCE SHEET [A] weight Adjusted
Assets
Liabilities £ Assets £ £
Current accounts 190 Cash in Tills 30 0% Q1
Time deposits 65
Total Liabilities 255 Available for sale assets
Gove' Bonds & Bills 50 10% Q2
Other Bonds & Bills 50 20% Q3
Other Assets
Equity Loans and advances 70 100% Q4
Capital 5 Mortgages 30 50% Q5
Retained Profits 5
Total Equity 10 Investments 35 50% Q6
Total Liabilities + Equity 265 Total Assets 265 Total Q7
Question Q8 to Q11
Based on the above balance sheet calculate the following banking ratios:
Liquidity Ratio : Q8
Reserve Ratio : Q9
Leverage Ratio : Q10
Capital Ratio : Q11
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Student Number
Question Q12 to Q13
In the above balance sheet (balance sheet [A]) 'Other Bonds & Bills' have a risk weighting of 20%,
what would happen to: (a) the value of Risk-Adjusted Assets and, (b) the Capital Ratio, if this
weighting was changed to 50%?
a) The value of Risk-Adjusted Assets would increase to £ Q12
b) The Capital Ratio would now be % Q13
Question Q14 to Q24
In the balance sheet below (which is based on balance sheet [A] above) assume that increasing
numbers of borrowers have defaulted on their loans such that Loans and advance have been be
‘written-down’ by £5.00, - from £70 to £65. Likewise (and to make up for these losses) Total Equity
also has to be written-down by £5.00 - from £10 to £5. Fill in the new (blank) values for Risk-Adjusted
Assets and the various banking ratios.
Risk
BALANCE SHEET [B] weight Adjusted
Assets
Liabilities £ Assets £ £
Current accounts 190 Cash in Tills 30 0% Q14
Time deposits 65
Total Liabilities 255 Available for sale assets
Gove' Bonds & Bills 50 10% Q15
Other Bonds & Bills 50 20% Q16
Other Assets
Equity Loans and advances 65 100% Q17
Capital 2.5 Mortgages 30 50% Q18
Retained Profits 2.5
Total Equity 5 Investments 35 50% Q19
Total Liabilities + Equity 260 Total Assets 260 Total Q20
Liquidity Ratio : Q21
Reserve Ratio : Q22
Leverage Ratio : Q23
Capital Ratio : Q24
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Student Number
Question Q25
Comparing the balance sheets before an after the write-down in assets & total equity (i.e. balance
sheet [A] to balance sheet [B]) which of the following statements explains why has the capital ratio
fallen by so much? (Tick the appropriate box):
Because the percentage change in Total Equity [4.3%]
is far less than the percentage change in Risk-Adjusted assets [50%].
Because the percentage change in Total Equity [50%]
is far greater than the percentage change in Total Assets [1.9%].
Because the percentage change in Total Assets [44.5%]
is far greater than the percentage change in Total Equity [4.8%].
Because the percentage change in Total Equity [44.5%]
is far greater than the percentage change in Risk-Adjusted assets [4.8%].
Because the percentage change in Total Equity [50%]
is far greater than the percentage change in Risk-Adjusted assets [4.3%].
Question Q26
If your calculation to Q24 is correct, the affect of writing-down Loans and advances and Total Equity
by £5.00 has seen the bank’s capital ratio fall to below the 8% legal minimum. Given the formula for
calculating the capital ratio, what does a bank need to do if it is required to restore its capital ratio to
the 8% minimum? (Tick the appropriate box)
Increase Total Liabilities such that ‘Cash in Till’ increases by the same amount.
Decrease Total Equity and increase Risk-Adjusted Assets.
Increase Total Equity and increase decrease Total Assets
Increase Total Equity and decrease Risk-Adjusted Assets.
Decrease Total Liabilities such that ‘Cash in Till’ decreases by the same amount
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Question Q27 to Q36
In practical terms, increasing its capital ratio could see the bank can do which of the following things?
(Tick the appropriate boxes – there is more than one option).
Ask the central bank for a loan offering its ‘money at call’ as collateral against that loan. Q27
Find new investors. Q28
Enter into a 'repo' arrangement with other commercial banks. Q29
Delay the payment of dividends to existing share holders. Q30
Improve its profitability by increasing loan rates to all borrowers. Q31
Lay off bank staff & employees. Q32
Enter into a 'repo' arrangement with the central bank. Q33
Close underperforming branches. Q34
Reduce its lending (Loans and advances) to private individuals. Q35
Increase other bank charges to improve profitability. Q36
Question Q37
From balance sheet [B] if the bank was unable to increase its Total Equity (i.e. it remains at £5.00)
what new configuration of Cash in tills and Loans and advances would see the bank achieve an 8%
capital ratio (assume all other assets remain unchanged)
Risk
BALANCE SHEET [C] weight Adjusted
Assets
Liabilities £ Assets £ £
Current accounts 190 Cash in Tills 0%
Time deposits 65
Total Liabilities 255 Available for sale assets
Gove' Bonds & Bills 50 10%
Other Bonds & Bills 50 20%
Other Assets
Equity Loans and advances 100%
Capital 2.5 Mortgages 30 50%
Retained Profits 2.5
Total Equity 5 Investments 35 50%
Total Liabilities + Equity 260 Total Assets 260 Total
Restored Capital Ratio : 8%
END OF QUESTIONS
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