Exam 19: Liability and Liquidity Management

Buffer reserves at DIs are

Michelle has maintained an average balance of $300 per month for the first three months of the year, $800 per month for the next three months, and $1,000 per month for the final six months of the year in a NOW account.It requires a minimum balance of $500 to be maintained if annual interest of 5 percent is to be earned.She writes an average of 25 checks per month but the account does not have a service charge for checks although it costs the bank 10 cents to process each check. What is the average return earned (explicit and implicit) by her over the year?

Because of penalties imposed for early withdrawal, a CD depositor is unlikely to withdrawal the CD funds from the bank before maturity.

The increased securitization of bank loans has reduced the liquidity of bank assets.

Recently banks have changed the liability structure towards instruments that have less withdrawal risk and higher explicit interest costs.

Reliance on purchased or borrowed funds will largely eliminate the liquidity risk faced by a bank.

Medium term notes issued by a U.S.DI

Demand deposits are a costless source of funds and have a high degree of withdrawal risk.

A NOW account requires a minimum monthly balance of $500 if annual interest of 5 percent is to be earned monthly on its deposits.An account holder has maintained an average balance of $300 for the first nine months of the year and $800 for the last three months of the year.She has written an average of 20 checks a month and is not charged for these services.However, it costs the bank $0.02 to process each check. What is the average return (both explicit and implicit) earned by the account holder if the bank pays interest on only the amounts in excess of the required minimum of $200?

Under the lagged reserve accounting system, the

Another method that may be employed by banks to lower required reserves is to

Banks often convert on-balance-sheet banker's acceptances into off-balance-sheet letters of credit for the purpose of minimizing total assets and thus improving performance ratios such as ROA.

A strategy to lower deposits on Fridays can lower reserve requirements for a bank.

In the U.S., banks can hold cash and government securities to meet reserve requirements.

What is the average daily reserve required to be held by the bank for their demand deposits during the maintenance period? Suppose that the rules require no reserves for the first $14.5 million, 3 percent for amounts between $14.5 million and $103.6 million, and 10 percent thereafter.

Fed funds are short-term uncollateralized loans with maturities that typically do not exceed one day.

A bank has an average balance of transactions accounts, August 10 to 23, of $824.46 million.The average balance in the cash account is $42.014 million over this period.The bank is carrying forward a deficit of $1.276 million from the last reserve period.The rules require no reserves to be maintained for the first $8.5 million, 3 percent for amounts between $8.5 million and $45.8 million, and 10 percent thereafter. If over the first 12 days of the current reserve maintenance period the average daily reserve held were $37 million, what does the bank need to hold as reserves over the last two days to meet the minimum reserve?

Which of the following observations is NOT true of a liquid asset?

In situations where the required reserve shortfall exceeds 4 percent, the bank may be

Because MMDAs are in direct competition with MMMFs, the withdrawal rate is affected by the relative amount of explicit interest paid on these accounts.