Exam 18: Liability and Liquidity Management

Which of the following is a mechanism used by DI managers to reduce demand deposit withdrawal rates?

Funding costs generally are positively related to the period of time the liability remains on the balance sheet.

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?

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 if the minimum balance is reduced to $200?

Many states in the U.S.impose liquid asset ratios on insurance companies which may be met by

The largest dollar volume of money market securities is

The following demand deposits and cash reserves at the Fed have been documented by a bank for the computation of reserve requirements (in millions). Note that reserves are vault cash and reserves at the Fed. -What are the average daily demand deposit balances over the reserve computation period beginning the week of June 12?

One cost of demand deposits to DIs is the reserve requirement placed on the bank by the Federal Reserve.

Property-casualty insurance companies typically have greater liquidity risk than life insurance companies.

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

What is the major distinction between NOW accounts and traditional demand deposits?

NOW accounts allow the explicit payment of interest.

Over the past 30 years in the DI industry

Short-term CDs often are priced competitively with T-bills of similar maturity.

An FI offers a $2,500 minimum balance NOW account paying 4 percent annual interest,and there are no service charges as long as the customer maintains the minimum balance.The customer maintains a balance of $5,000,and averages 750 checks per year.Each check has a processing cost to the FI of $0.15.What is the annual gross interest return on this account to the customer?

Although they are subject to reserve requirements,many DIs have begun to issue medium-term notes because they are a stable source of funds.

The contemporaneous reserve accounting system requires the maintenance period to occur simultaneously with the computation period.

Managing a bank's reserve position requires knowing only the target reserve ratio and the period over which reserves must be maintained.

A DI offers a $500 minimum balance NOW account paying 5.5 percent annual interest.The account has a service charge of $0.05 per check,and processing costs per check are $0.15.The customer maintains a balance of $1,000,and averages 150 checks per year.What is the annual gross interest return on this account to the customer?

Which of the following rankings of liabilities is correct if they are ranked by withdrawal risk from riskiest to least risky?