Exam 13: Managing Nondeposit Liabilities

The TRC Bank is planning on raising $500 million in a new offering of commercial paper through its holding company.It plans on using $475 million of it to fund new loans.The current interest rate for similar commercial paper is 6.45 percent and it expects 0.25 percent in issuing costs.What is the effective rate of interest on this issue of commercial paper?

CDs sold by some of the largest foreign banks active in the United States through their branches are called Yankee CDs.

A conventional Repurchase Agreement (RP)is ________ for the borrower than (as)a General Collateral Finance RP.

Which of the following is the role performed by accommodating banks?

A ______________ repurchase agreement (RP)is one in which the underlying collateral is not identified precisely and thus allows some substitution at the time of delivery.

For a bank with immediate reserve requirements,a viable alternative to Fed funds market and RPs is to use the _______________ window operated by the Federal Reserve to provide loans.

The HTR Bank is planning on raising $750 million in a new offering of commercial paper through its holding company.It plans on using $725 million of it to fund new loans.The current interest rate for similar commercial paper is 7.15 percent and it expects 0.15 percent in issuing costs.What is the effective rate of interest on this issue of commercial paper?

Volatility in funding and credit costs to banks due to fluctuating supply and demand conditions in the market is known as __________________ risk.

Under current federal law,commercial banks in the United States can issue commercial paper as direct obligations of the banks.

The size of a financial institution has an effect on the type of nondeposit funding source it considers.For example,larger depository institutions have the credit standing to sell the largest negotiable CDs,while the Fed funds market is suitable for smaller institutions.

The Willis Savings Bank is comparing the prevailing interest rate in the Fed Funds market with that of the negotiable CD market.It is making sure to include the noninterest costs,the deposit insurance costs,and the amount of money that will actually be available for new loans.Which factor that affects a bank's use of nondeposit sources of funds is the bank examining?

A _________________________ is a temporary sale of high-quality,easily-liquidated assets accompanied by an agreement to buy back those assets on a future specific date at a predetermined price.

In recent years,financial institutions have gotten better at managing interest rate risk.

_________________________ are short-term notes,with maturities ranging from 3 days to 9 months,issued by well-known companies.

Repurchase Agreement (RPs)transactions are perceived to be less risky than equivalent Federal funds transactions.

The Bank of Boulder is planning on issuing $45 million in negotiable CDs.Currently other similar CDs bear an interest rate of 4.75 percent.The bank has estimated that its noninterest costs of issuing these CDs are 0.15 percent,and it expects to pay a deposit insurance premium of 0.0023 per dollar of insured funds.Due to other immediate cash needs,only $40 million of the funds raised will be fully invested.What is the effective cost rate for the Bank of Boulder to borrow in the CD market? (Round your answer to the nearest 0.01 percent)

The Bridges State Bank has new loan requests of $315,needs to purchase $125 million in U.S.Treasury securities for reserve requirements,and anticipates draws on lines of credit in the amount of $65 million.If total deposits received today are $205 million and the bank expects to bring in an additional $185 million in deposits next week,what is the estimated funds gap for the Bridges State Bank?

The source of short-term funds for commercial banks that was developed to tap temporary surplus funds held by large corporate and wealthy individual customers is:

The Williams National Bank has new loan requests of $585 million,needs to purchase $160 in U.S.Treasury securities for reserve requirements,and anticipates draws on lines of credit in the amount of $120 million.If deposits received today total $300 million and it expects to bring in an additional $340 million in deposits next week,what is the estimated funds gap of the Williams National Bank?

Yankee CDs are issued by savings and loan associations and other nonbank savings institutions.