Exam 12: Liquidity Risk

Liquid funds can be obtained by a DI through unlimited borrowing in the money or purchased funds markets.

The price at which an open-end investment fund stands ready to redeem existing shares is the

Which type of financial intermediary is more highly exposed to liquidity risk?

Liquidity risk for a life insurance company only occurs when asset returns do not provide sufficient cash flows to meet policyholder liquidations.

Liquidity risk is a normal aspect of everyday management of an FI.

As of 2014,all U.S.banks must report their The Liquidity Coverage Ratio (LCR)to the FDIC rather than to the Federal Reserve.

Of the following,which financial intermediary is least likely to be exposed to liquidity risk?

Which intermediation function results in an FI's exposure to liquidity risk?

Purchased liquidity risk management usually involves purchased funds such as fed funds,repurchase agreements and CDs.

An FI has $5 million in cash reserves with the Fed in excess of its reserve requirements,$5 million in T-Bills,and a credit line of $10 million to borrow in the repo market.It currently has lent $2 million in the Fed Funds market and borrowed $1 million from the Federal discount window to meet its seasonal needs. Assume that the T-Bills can only be sold at a 10 percent discount,what is the net liquidity of the bank given this information?

When liquidity risk problems occur at a DI,they often threaten the solvency of the institution.

Banks with relatively high loan commitments face less liquidity risk exposure than banks with a low level of loan commitments.

A DI's financing requirement is defined as its financing gap plus the DI's liquid asset holdings.

An FI's most liquid asset is cash.

When banks use stored liquidity management,they

In terms of liquidity risk measurement,the financing gap is defined as rate sensitive assets minus rate sensitive liabilities.

Both PC and life insurance companies have to deal with liability runs by policyholders seeking to cash out their policies before maturity.

The net stable funds ratio (NSFR)is a longer-term measure than the liquidity coverage ratio (LCR).

Liquidation of a mutual fund causes assets to be liquidated and funds received to the dispersed to shareholders on a first come,first served basis.

A DI has two assets: 50 percent in one-month Treasury bills and 50 percent in real estate loans.If the DI must liquidate its T-bills today,it receives $98 per $100 of face value;if it can wait to liquidate them on maturity (in one month's time),it will receive $100 per $100 of face value.If the DI has to liquidate its real estate loans today,it receives $90 per $100 of face value liquidation at the end of one month will produce $92 per $100 of face value.The one-month liquidity index value for this DI's asset portfolio is