Exam 18: Liability and Liquidity Management

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. What is the gross reserve requirement?

Which of the following observations concerning the federal funds rate is NOT true?

Buffer reserves at DIs are

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

Federal funds are excess reserves held by the Federal Reserve Banks that are loaned to banks that have liquidity needs.

Because of the collateral feature,RPs typically have a higher interest rate than fed funds.

For reserve calculation purposes,the period that begins on a Thursday and ends on a Wednesday 14 days later is known as

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 earned (both explicit and implicit)by the account holder over the full year?

One reason FIs such as depository institutions and life insurance companies are exposed to liquidity risk is the relatively illiquid nature of their liabilities.

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

A liquid asset can be converted to cash quickly,but will require a discount from market value.

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

Which of the following liability products does NOT have withdrawal risk?

The minimum daily average reserve requirement is computed by

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?

The negotiable instrument characteristic of large wholesale CDs effectively eliminates the adverse withdrawal risk for the bank.

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 maximum reserves that will count toward the next reserve maintenance period,September 23 to October 6,is

Currently the reserve maintenance period begins 30 days after the end of the reserve computation period.

Why are passbook savings generally less liquid than demand deposits and NOW accounts?