Question 1

Which of the following statements is false?

Accepted Answer

A) It is difficult to isolate which part of past deposits and loan fluctuations is due to cyclical liquidity. 
B) Forecasting future liquidity needs based on past patterns is always risky due to changes in seasonal patterns, regulation and economic conditions. 
C) Liquidity planning tools typically ignore cyclical liquidity needs and liquidity needs due to FI confidence crises. 
D) None of the listed options are correct. 
A) It is difficult to isolate which part of past deposits and loan fluctuations is due to cyclical liquidity. 
B) Forecasting future liquidity needs based on past patterns is always risky due to changes in seasonal patterns, regulation and economic conditions. 
C) Liquidity planning tools typically ignore cyclical liquidity needs and liquidity needs due to FI confidence crises. 
D) None of the listed options are correct.

Question 2

The aim of open market transactions is to influence the level of liquidity in the market.

Accepted Answer

A) True 
 B)False

Question 3

Discuss the advantages and disadvantages of stored liquidity management and purchased liquidity management.In your opinion, which is the better approach for a DI to adopt?

Accepted Answer

If the DI has a net deposit drain, it ne

Question 4

Consider the following hypothetical data: $$\begin{array} { | l | l | } 
\hline \text { Sources of liquidity } & \
\hline \text { Total cash-type assets } & \$ 3000 \
\hline \text { Maximum borrowed funds limit } & \$ 22000 \
\hline \text { Excess cash in exchange settlement account (ESA) } & \$ 1000 \
\hline & \
\hline \text { Uses of liquidity } & \
\hline \text { Funds borrowed } & \$ 12500 \
\hline \text { ESAfunds } & \$ 500 \
\hline
\end{array}$$ What is the FI's net liquidity position?

Accepted Answer

A) ($12 500 + $500) - ($3000 + $22 000 + $1000) = -$13 000 
B) ($3000 + $22 000 + $1000) - ($12 500 + $500) = $13 000 
C) ($12 500 - $500) = $13 000 
D) ($3000 + $22 000 + $1000) = $26 000 
A) ($12 500 + $500) - ($3000 + $22 000 + $1000) = -$13 000 
B) ($3000 + $22 000 + $1000) - ($12 500 + $500) = $13 000 
C) ($12 500 - $500) = $13 000 
D) ($3000 + $22 000 + $1000) = $26 000

Question 5

APRA requires every FI to hold sufficient liquid assets to meet a name crisis situation.

Accepted Answer

A) True 
 B)False

Question 6

A bank run refers to a sudden:

Accepted Answer

A) but expected increase in deposit withdrawals from an FI 
B) and unexpected increase in deposit withdrawals from an FI 
C) and unexpected increase in customers that wish to undertake business with the FI 
D) but expected increase in customers that wish to undertake business with the FI 
A) but expected increase in deposit withdrawals from an FI 
B) and unexpected increase in deposit withdrawals from an FI 
C) and unexpected increase in customers that wish to undertake business with the FI 
D) but expected increase in customers that wish to undertake business with the FI

Question 7

In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts knows that normally only a small proportion of these deposits will be withdrawn on any given day.

Accepted Answer

A) True 
 B)False

Question 8

What are typical reasons for abnormal deposit drains?

Accepted Answer

A) Concerns about an FI's solvency relative to other FIs. 
B) Failure of a related FI leading to heightened depositor concerns about the solvency of other FIs. 
C) Sudden changes in investor preferences regarding holding non-bank financial assets relative to deposits. 
D) All of the listed options are correct. 
A) Concerns about an FI's solvency relative to other FIs. 
B) Failure of a related FI leading to heightened depositor concerns about the solvency of other FIs. 
C) Sudden changes in investor preferences regarding holding non-bank financial assets relative to deposits. 
D) All of the listed options are correct.

Question 9

The Reserve Bank of Australia (RBA) took a number of temporary actions during the global financial crisis to provide liquidity and avert financial system disturbance.Which of the following were not actions supplied by the RBA?

Accepted Answer

A) Extension of collateral eligible for open market operations. 
B) Longer term repos offered daily that provided funding for six-month and one-year terms. 
C) Residential mortgage-backed securities and asset-backed commercial paper. 
D) A foreign exchange swap facility to address the global shortage of euro in financial markets. 
A) Extension of collateral eligible for open market operations. 
B) Longer term repos offered daily that provided funding for six-month and one-year terms. 
C) Residential mortgage-backed securities and asset-backed commercial paper. 
D) A foreign exchange swap facility to address the global shortage of euro in financial markets.

Question 10

Net asset value is the:

Accepted Answer

A) product of the price at which a managed fund's shares are sold and the number of outstanding shares 
B) price at which a managed fund's shares are sold 
C) value of an investor's holding in managed fund's shares 
D) None of the listed options are correct. 
A) product of the price at which a managed fund's shares are sold and the number of outstanding shares 
B) price at which a managed fund's shares are sold 
C) value of an investor's holding in managed fund's shares 
D) None of the listed options are correct.

Question 11

Which of the following statements is true?

Accepted Answer

A) In Australia, depositors received preference over other liability holders in the event of a liquidation of an FI. 
B) In Australia, depositors receive preference over other liability holders in the event of a liquidation of an FI being replaced by a financial claims scheme to protect deposit accounts. 
C) In Australia, only customers of the major banks are covered by deposit insurance. 
D) Australia has had a well-developed deposit insurance system for decades that has protected depositors without a bank failure for over a century. 
A) In Australia, depositors received preference over other liability holders in the event of a liquidation of an FI. 
B) In Australia, depositors receive preference over other liability holders in the event of a liquidation of an FI being replaced by a financial claims scheme to protect deposit accounts. 
C) In Australia, only customers of the major banks are covered by deposit insurance. 
D) Australia has had a well-developed deposit insurance system for decades that has protected depositors without a bank failure for over a century.

Question 12

An FI can manage a drain on deposits or an exercise of a loan commitment in two major ways, these being purchased liquidity management and stored liquidity management.

Accepted Answer

A) True 
 B)False

Question 13

Available unencumbered assets are important as they have the potential to be used as collateral to raise additional secured funding in secondary markets and also possible at the RBA, and as such, may potentially be additional sources of liquidity for the DI

Accepted Answer

A) True 
 B)False

Question 14

Cyclical liquidity needs are those which vary with the:

Accepted Answer

A) seasonal cycle 
B) business cycle 
C) weather cycle, for example influencing droughts 
D) FI's maturity cycle 
A) seasonal cycle 
B) business cycle 
C) weather cycle, for example influencing droughts 
D) FI's maturity cycle

Question 15

Fire-sale price refers to the price received for:

Accepted Answer

A) an asset that has to be sold at half price 
B) a liability that has to be sold at half price 
C) an asset that has to be sold immediately 
D) a liability that has to be sold immediately 
A) an asset that has to be sold at half price 
B) a liability that has to be sold at half price 
C) an asset that has to be sold immediately 
D) a liability that has to be sold immediately

Question 16

Trend liquidity needs are liquidity needs that relate to the:

Accepted Answer

A) trends occurring in the community where, for example, loan growth exceeds deposits growth. 
B) trends occurring in the community where, for example, deposit growth exceeds loan growth. 
C) demand for liquidity that fluctuates with seasonal factors. 
D) demand for liquidity that fluctuates with seasonal factors within a community 
A) trends occurring in the community where, for example, loan growth exceeds deposits growth. 
B) trends occurring in the community where, for example, deposit growth exceeds loan growth. 
C) demand for liquidity that fluctuates with seasonal factors. 
D) demand for liquidity that fluctuates with seasonal factors within a community

Question 17

The liquidity index will always lie between -1 and +1.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is true?

Accepted Answer

A) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay shareholders immediately. 
B) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to finance new loan demand. 
C) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay fully and promptly all maturing liabilities. 
D) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay all short-term liabilities immediately. 
A) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay shareholders immediately. 
B) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to finance new loan demand. 
C) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay fully and promptly all maturing liabilities. 
D) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay all short-term liabilities immediately.

Question 19

Stored liquidity management is a liability-side adjustment to the balance sheet to cover a deposit drain

Accepted Answer

A) True 
 B)False

Question 20

Stored liquidity management is:

Accepted Answer

A) a liability-side adjustment to the balance sheet to cover a deposit drain 
B) an asset-side adjustment to the balance sheet to cover a deposit drain 
C) an equity-side adjustment to the balance sheet to cover a deposit drain 
D) All of the listed options are correct. 
A) a liability-side adjustment to the balance sheet to cover a deposit drain 
B) an asset-side adjustment to the balance sheet to cover a deposit drain 
C) an equity-side adjustment to the balance sheet to cover a deposit drain 
D) All of the listed options are correct.

Which of the following statements is false?

The aim of open market transactions is to influence the level of liquidity in the market.

Discuss the advantages and disadvantages of stored liquidity management and purchased liquidity management.In your opinion, which is the better approach for a DI to adopt?

Consider the following hypothetical data: Sources of liquidity Total cash-type assets \ 3000 Maximum borrowed funds limit \ 22000 Excess cash in exchange settlement account (ESA) \ 1000 Uses of liquidity Funds borrowed \ 12500 ESAfunds \ 500 What is the FI's net liquidity position?

APRA requires every FI to hold sufficient liquid assets to meet a name crisis situation.

A bank run refers to a sudden:

In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts knows that normally only a small proportion of these deposits will be withdrawn on any given day.

What are typical reasons for abnormal deposit drains?

The Reserve Bank of Australia (RBA) took a number of temporary actions during the global financial crisis to provide liquidity and avert financial system disturbance.Which of the following were not actions supplied by the RBA?

Net asset value is the:

Which of the following statements is true?

An FI can manage a drain on deposits or an exercise of a loan commitment in two major ways, these being purchased liquidity management and stored liquidity management.

Available unencumbered assets are important as they have the potential to be used as collateral to raise additional secured funding in secondary markets and also possible at the RBA, and as such, may potentially be additional sources of liquidity for the DI

Cyclical liquidity needs are those which vary with the:

Fire-sale price refers to the price received for:

Trend liquidity needs are liquidity needs that relate to the:

The liquidity index will always lie between -1 and +1.

Which of the following statements is true?

Stored liquidity management is a liability-side adjustment to the balance sheet to cover a deposit drain

Stored liquidity management is:

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off-Balance-Sheet Instruments

Managing Interest Rate Risk Using Securitisation

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risks

Capital Management and Adequacy

Filters

Exam 14: Liquidity Risk

Which of the following statements is false?

The aim of open market transactions is to influence the level of liquidity in the market.

Discuss the advantages and disadvantages of stored liquidity management and purchased liquidity management.In your opinion, which is the better approach for a DI to adopt?

Consider the following hypothetical data: Sources of liquidity Total cash-type assets \ 3000 Maximum borrowed funds limit \ 22000 Excess cash in exchange settlement account (ESA) \ 1000 Uses of liquidity Funds borrowed \ 12500 ESAfunds \ 500 What is the FI's net liquidity position?

APRA requires every FI to hold sufficient liquid assets to meet a name crisis situation.

A bank run refers to a sudden:

In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts knows that normally only a small proportion of these deposits will be withdrawn on any given day.

What are typical reasons for abnormal deposit drains?

The Reserve Bank of Australia (RBA) took a number of temporary actions during the global financial crisis to provide liquidity and avert financial system disturbance.Which of the following were not actions supplied by the RBA?

Net asset value is the:

Which of the following statements is true?

An FI can manage a drain on deposits or an exercise of a loan commitment in two major ways, these being purchased liquidity management and stored liquidity management.

Available unencumbered assets are important as they have the potential to be used as collateral to raise additional secured funding in secondary markets and also possible at the RBA, and as such, may potentially be additional sources of liquidity for the DI

Cyclical liquidity needs are those which vary with the:

Fire-sale price refers to the price received for:

Trend liquidity needs are liquidity needs that relate to the:

The liquidity index will always lie between -1 and +1.

Which of the following statements is true?

Stored liquidity management is a liability-side adjustment to the balance sheet to cover a deposit drain

Stored liquidity management is:

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off-Balance-Sheet Instruments

Managing Interest Rate Risk Using Securitisation

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risks

Capital Management and Adequacy

Filters