A Bank Manager Is Interested in Assigning a Rating to the Holders

question 58

Essay

A bank manager is interested in assigning a rating to the holders of credit cards issued by her bank.The rating is based on the probability of defaulting on credit cards and is as follows. To estimate this probability,she decided to use the logistic model where
y = a binary response variable with value of 1 corresponding to a default,and 0 to a no default
x₁ = the ratio of the credit card balance to the credit card limit (in %)
x₂ = the ratio of the total debt to the annual income (in %)
Using Minitab on the sample data,she arrived at the following estimates: Note: The p-values of the corresponding tests are shown in parentheses below the estimated coefficients.
Assuming the debt ratio 30%,compute the increase in the probability of defaulting when the balance ratio goes up from 5% to 15%.

Comprehend the importance of depository institutions and their functions.

Describe the Federal Reserve's tools for influencing monetary policy, including open-market operations and the discount rate.

Understand the role of the Federal Deposit Insurance Corporation (FDIC).

Realize the impact of monetary policy on financial markets and institutions, including during historical events like the Great Depression.

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Definitions:

Productive

Refers to the efficiency and effectiveness in producing goods or services, often measured in terms of output per unit of input.

Government Activity

Actions or initiatives undertaken by the state or governmental bodies to govern, regulate, or manage public affairs.

Public Choice Analysis

An economic framework that applies theories and methods traditionally used to analyze market behavior to political decision-making.

Budget Deficits

A situation where a government's expenditures exceed its revenue over a specified period, leading to borrowing or the depletion of reserves.