Question 1

What are the two major liquidity risk insulation devices available?

Accepted Answer

A) Deposit insurance and discount window. 
B) Liquidity planning and maturity ladder. 
C) Scenario analysis and liquidity index. 
D) Financing gap and the financing requirement. 
A) Deposit insurance and discount window. 
B) Liquidity planning and maturity ladder. 
C) Scenario analysis and liquidity index. 
D) Financing gap and the financing requirement.

Question 2

A contagious run,or bank panic,differs from a run on a bank in that a contagious run involves loss of faith in the entire banking system as opposed to just one bank.

Accepted Answer

A) True 
 B)False

Question 3

The cost of stored liquidity management is the interest that must be paid on the stored funds.

Accepted Answer

A) True 
 B)False

Question 4

What is the asset adjustment to a bank's balance sheet if the bank sold a five-year,7 percent annual coupon $100,000 bond acquired at par,but now yielding 8 percent? The bond was not in the mark-to-market portfolio.

Accepted Answer

A) A $96,007 reduction in assets. 
B) A $96,007 increase in assets. 
C) A $100,000 reduction in assets. 
D) A $100,000 increase in assets. 
A) A $96,007 reduction in assets. 
B) A $96,007 increase in assets. 
C) A $100,000 reduction in assets. 
D) A $100,000 increase in assets.

Question 5

When computing the liquidity coverage ratio,high-quality liquid assets (HQLAs)are divided into two levels.

Accepted Answer

A) True 
 B)False

Question 6

How does purchased liquidity management affect profitability?

Accepted Answer

A) By its impact on the interest rate sensitivity of assets. 
B) By its impact on the interest rate sensitivity of liabilities. 
C) By determining the default risk of investment securities. 
D) By its impact on the cost of purchased funds. 
A) By its impact on the interest rate sensitivity of assets. 
B) By its impact on the interest rate sensitivity of liabilities. 
C) By determining the default risk of investment securities. 
D) By its impact on the cost of purchased funds.

Question 7

$\begin{array}{l}
\begin{array}{l}
\text { Assets} & \text {  Liabilities and Equity}\
\text { Cash Required Reserves}&\$ 2 \text { million Deposits } \
\text {  Loans}&\$ 10 \text { million Longterm Debt } \
&\text { Equity } \
\text { Total}&\$ 12 \text { million Total }
\end{array}
\begin{array}{l}
\
\$ 8 \text { million } \
\$ 2 \text { million } \
\$ 2 \text { million } \
\$ 12 \text { million }
\end{array}
\end{array}$ The average interest earned on the loans is 6 percent and the average cost of deposits is 5 percent.Rising interest rates are expected to reduce the deposits by $3 million.Borrowing more debt will cost the bank 5.5 percent in the short term.
What will be the cost of using a strategy of reducing its asset base to meet the expected decline in deposits? Assume that the bank intends to keep $2 million in cash as a liquidity precaution.

Accepted Answer

A) $10,000. 
B) $15,000. 
C) $30,000. 
D) $40,000. 
A) $10,000. 
B) $15,000. 
C) $30,000. 
D) $40,000.

Question 8

What are the possible ways that the bank can meet an expected net deposit drain of +4 percent using stored liquidity management techniques?

Accepted Answer

A) Liquidate all cash holdings. 
B) Utilize further the Fed funds market. 
C) Liquidate some securities and/or loans. 
D) Liquidate all cash and use more Fed funds. 
A) Liquidate all cash holdings. 
B) Utilize further the Fed funds market. 
C) Liquidate some securities and/or loans. 
D) Liquidate all cash and use more Fed funds.

What are the two major liquidity risk insulation devices available?

A contagious run,or bank panic,differs from a run on a bank in that a contagious run involves loss of faith in the entire banking system as opposed to just one bank.

The cost of stored liquidity management is the interest that must be paid on the stored funds.

What is the asset adjustment to a bank's balance sheet if the bank sold a five-year,7 percent annual coupon $100,000 bond acquired at par,but now yielding 8 percent? The bond was not in the mark-to-market portfolio.

When computing the liquidity coverage ratio,high-quality liquid assets (HQLAs)are divided into two levels.

How does purchased liquidity management affect profitability?

What are the possible ways that the bank can meet an expected net deposit drain of +4 percent using stored liquidity management techniques?

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters

Exam 12: Liquidity Risk

What are the two major liquidity risk insulation devices available?

A contagious run,or bank panic,differs from a run on a bank in that a contagious run involves loss of faith in the entire banking system as opposed to just one bank.

The cost of stored liquidity management is the interest that must be paid on the stored funds.

What is the asset adjustment to a bank's balance sheet if the bank sold a five-year,7 percent annual coupon $100,000 bond acquired at par,but now yielding 8 percent? The bond was not in the mark-to-market portfolio.

When computing the liquidity coverage ratio,high-quality liquid assets (HQLAs)are divided into two levels.

How does purchased liquidity management affect profitability?

What are the possible ways that the bank can meet an expected net deposit drain of +4 percent using stored liquidity management techniques?

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters