Exam 18: Liability and Liquidity Management

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. The bank would like to limit the average return (both explicit and implicit)earned by the account holder to 5 percent per year.How much should it charge for processing each check to this Account holder assuming that it will pay annual interest of 5 percent and minimum balances of $200 are maintained?

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

A strategy to increase reservable deposits on a Friday and decrease reservable deposits on the following Monday is called the weekend game.

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

Which of the following is an outcome of a decrease in the reserve requirement ratio?

The reserve computation period for determining required reserves covers the 14 days of a two-week period that runs from Monday to Monday.

Because retail CDs have fixed maturities,FI managers always should have perfect information regarding the scheduling of interest and principal payments.

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?

Most large banks in the U.S.directly issue commercial paper to meet their liquidity needs.

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 exactly meet the reserve requirement?

The establishment of minimum required reserves by regulators is a method of extracting taxes from FIs.

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. The minimum reserves that may be maintained toward the next reserve maintenance period,September 23 to October 6,is

Which of the following observations is true of the contemporaneous reserve accounting system?

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 maximum reserve?

For a DI in the U.S.with $200 in assets and $180 in deposits,a liquid assets ratio of 15 percent

Because the minimum amount of a negotiable wholesale CD is $100,000,holders of these CDs are fully covered by FDIC insurance.

Wholesale certificates of deposit

To reduce liquidity risk an FI can efficiently manage the liability structure of its portfolio.

Passbook savings accounts are less liquid than demand deposit accounts.

FIs participating in the fed funds market,either buying or selling,are usually able to do so without amount or maturity restrictions.