Question 1

An open-end fund is defined as an investment fund that sells:

Accepted Answer

A) an elastic number of shares to outside investors 
B) a fixed number of shares to an elastic number of outside investors 
C) an elastic number of shares to outside investors, but that never buys back any of these shares 
D) a fixed number of shares to an elastic number of outside investors, but that never buys back any of these shares 
A) an elastic number of shares to outside investors 
B) a fixed number of shares to an elastic number of outside investors 
C) an elastic number of shares to outside investors, but that never buys back any of these shares 
D) a fixed number of shares to an elastic number of outside investors, but that never buys back any of these shares

Question 2

Which of the following is false?

Accepted Answer

A) Appropriate liquidity planning can lower the cost of funds of an FI and thus increase its profitability. 
B) Appropriate liquidity planning can maximise the amount of excess cash reserves. 
C) Appropriate liquidity planning can limit an FI's liquidity risk. 
D) None of the listed options are correct. 
A) Appropriate liquidity planning can lower the cost of funds of an FI and thus increase its profitability. 
B) Appropriate liquidity planning can maximise the amount of excess cash reserves. 
C) Appropriate liquidity planning can limit an FI's liquidity risk. 
D) None of the listed options are correct.

Question 3

Which of the following is not a potential cause of liquidity risk for a DI?

Accepted Answer

A) a decrease in the DI's stock price caused by market factors 
B) an increase in requests to fund large amounts of loan commitments 
C) a decrease in the availability of short-term borrowed funds 
D) an increase in requests by depositors to withdrawal large amounts of deposits 
A) a decrease in the DI's stock price caused by market factors 
B) an increase in requests to fund large amounts of loan commitments 
C) a decrease in the availability of short-term borrowed funds 
D) an increase in requests by depositors to withdrawal large amounts of deposits

Question 4

Use the following balance sheet (values in thousands of dollars) to answer the question. $$\begin{array} { | l | r | l | r | } 
\hline{ \text { Assets } } & & { \text { Liabilities and equity } } & \
\hline \text { Cash required reserves } & 21 & \text { Demand deposits } & 550 \
\hline \text { Short-term securities } & 369 & \text { Interbank borrowed funds } & 151 \
\hline \text { Loans } & 400 & \text { Equity } & 89 \
\hline \text { Total } & 790 & \text { Total } & 790 \
\hline
\end{array}$$ If the bank experiences a $50 000 sudden liquidity drain caused by withdrawal of their demand deposits, what will be the impact on the balance sheet if purchased liquidity management techniques are used?

Accepted Answer

A) a reduction in cash of $21,000 and a decrease in demand deposits of $29,000 
B) a reduction in securities and/or current loans totalling $50,000 
C) a reduction in demand deposits of $50,000 and an increase in interbank borrowings of $50,000 
D) a decrease in equity of $50,000 
A) a reduction in cash of $21,000 and a decrease in demand deposits of $29,000 
B) a reduction in securities and/or current loans totalling $50,000 
C) a reduction in demand deposits of $50,000 and an increase in interbank borrowings of $50,000 
D) a decrease in equity of $50,000

Question 5

The maturity ladder model allows a comparison of cash inflows and cash outflows over a series of specified time periods.

Accepted Answer

A) True 
 B)False

Question 6

Bank panic refers to a contagious run on the deposits of:

Accepted Answer

A) banking institutions in particular suburbs 
B) the big four banks 
C) all branches of a particular institution. 
D) the banking industry as a whole. 
A) banking institutions in particular suburbs 
B) the big four banks 
C) all branches of a particular institution. 
D) the banking industry as a whole.

Question 7

Distinguish between liquidity risk arising from the asset side and the liability side of the balance sheet.

Accepted Answer

Liquidity risk occurs because of situati

Question 8

Which of the following statements is true?

Accepted Answer

A) A net liquidity statement focuses on the sources of liquidity and thus provides a measure of an FI's available liquidity. 
B) A net liquidity statement list focuses on the uses of liquidity and thus provides a measure of an FI's liquidity needs. 
C) A net liquidity statement lists sources and uses of liquidity and thus provides a measure of an FI's net liquidity position. 
D) None of the listed options are correct. 
A) A net liquidity statement focuses on the sources of liquidity and thus provides a measure of an FI's available liquidity. 
B) A net liquidity statement list focuses on the uses of liquidity and thus provides a measure of an FI's liquidity needs. 
C) A net liquidity statement lists sources and uses of liquidity and thus provides a measure of an FI's net liquidity position. 
D) None of the listed options are correct.

Question 9

An FI's financing gap is the difference between an FI's:

Accepted Answer

A) average core deposits and average loans 
B) average loans and average core deposits 
C) assets and liabilities 
D) liabilities and assets 
A) average core deposits and average loans 
B) average loans and average core deposits 
C) assets and liabilities 
D) liabilities and assets

Question 10

Trend liquidity planning calculates an FI's liquidity need as the simple difference between the FI's liquid assets and its volatile sources of funds.

Accepted Answer

A) True 
 B)False

Question 11

As part of the Basel III liquidity reforms the RBA will establish a secure committed liquidity facility.

Accepted Answer

A) This is necessary due to the shortage of capital required to be held by FIs. 
B) This is necessary due to the shortage of Australian government debt, T-bonds and T-notes, used in open market operations. 
C) This is necessary due to the shortage of international funds to purchase repos. 
D) All of the listed options are correct. 
A) This is necessary due to the shortage of capital required to be held by FIs. 
B) This is necessary due to the shortage of Australian government debt, T-bonds and T-notes, used in open market operations. 
C) This is necessary due to the shortage of international funds to purchase repos. 
D) All of the listed options are correct.

Question 12

Which of the following is not a component of liquidity planning?

Accepted Answer

A) A summary of the size of potential net deposit drains over various time horizons. 
B) Detailed list of funds providers who have seasonal patterns of funds usage. 
C) A calculation of the value of assets at fire-sale prices relative to the fair market value of those assets. 
D) A detailed itemisation of managerial responsibilities 
A) A summary of the size of potential net deposit drains over various time horizons. 
B) Detailed list of funds providers who have seasonal patterns of funds usage. 
C) A calculation of the value of assets at fire-sale prices relative to the fair market value of those assets. 
D) A detailed itemisation of managerial responsibilities

Question 13

Core deposits are those deposits that provide a DI with a long-term funding source

Accepted Answer

A) True 
 B)False

Question 14

Assume that an FI's average loan value is $500 and the average value of deposits is $450.The FI has liquid assets of $50.What is the FI's financing gap?

Accepted Answer

A) $500 - $450 - $50 = $0 
B) $450 - $500 = -$50 
C) $500 - $450 = $50 
D) $500 - $450 + $50 = $100 
A) $500 - $450 - $50 = $0 
B) $450 - $500 = -$50 
C) $500 - $450 = $50 
D) $500 - $450 + $50 = $100

Question 15

Contingent liquidity needs refers to the liquidity needs necessary to:

Accepted Answer

A) fund contingent assets 
B) fund assets 
C) meet an unforeseen event 
D) meet a foreseen event 
A) fund contingent assets 
B) fund assets 
C) meet an unforeseen event 
D) meet a foreseen event

Question 16

Which of the following statements is true?

Accepted Answer

A) In theory, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts must stand ready to pay out that amount by liquidating an equivalent amount of asset on any banking day. 
B) In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts must stand ready to pay out that amount by liquidating an equivalent amount of asset on any banking day. 
C) In theory, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts must stand ready to pay out half of that amount by liquidating an equivalent amount of asset on any banking day. 
D) In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts must stand ready to pay out half of that amount by liquidating an equivalent amount of asset on any banking day. 
A) In theory, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts must stand ready to pay out that amount by liquidating an equivalent amount of asset on any banking day. 
B) In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts must stand ready to pay out that amount by liquidating an equivalent amount of asset on any banking day. 
C) In theory, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts must stand ready to pay out half of that amount by liquidating an equivalent amount of asset on any banking day. 
D) In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts must stand ready to pay out half of that amount by liquidating an equivalent amount of asset on any banking day.

Question 17

In 2010, the Bank for International Settlements (BIS) developed two new liquidity ratios to be maintained by DIs, namely, the liquidity coverage ratio (LCR) and a net stable funds ratio (NSFR)

Accepted Answer

A) True 
 B)False

Question 18

What are the main components of a liquidity plan? Discuss the vital role such a plan plays in reducing liquidity risk.

Accepted Answer

A liquidity plan requires forward planni

Question 19

Fire-sale price refers to the price received for an asset that has to be sold at half price.

Accepted Answer

A) True 
 B)False

Question 20

Purchased 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.

An open-end fund is defined as an investment fund that sells:

Which of the following is false?

Which of the following is not a potential cause of liquidity risk for a DI?

The maturity ladder model allows a comparison of cash inflows and cash outflows over a series of specified time periods.

Bank panic refers to a contagious run on the deposits of:

Distinguish between liquidity risk arising from the asset side and the liability side of the balance sheet.

Which of the following statements is true?

An FI's financing gap is the difference between an FI's:

Trend liquidity planning calculates an FI's liquidity need as the simple difference between the FI's liquid assets and its volatile sources of funds.

As part of the Basel III liquidity reforms the RBA will establish a secure committed liquidity facility.

Which of the following is not a component of liquidity planning?

Core deposits are those deposits that provide a DI with a long-term funding source

Assume that an FI's average loan value is $500 and the average value of deposits is $450.The FI has liquid assets of $50.What is the FI's financing gap?

Contingent liquidity needs refers to the liquidity needs necessary to:

Which of the following statements is true?

In 2010, the Bank for International Settlements (BIS) developed two new liquidity ratios to be maintained by DIs, namely, the liquidity coverage ratio (LCR) and a net stable funds ratio (NSFR)

What are the main components of a liquidity plan? Discuss the vital role such a plan plays in reducing liquidity risk.

Fire-sale price refers to the price received for an asset that has to be sold at half price.

Purchased 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

An open-end fund is defined as an investment fund that sells:

Which of the following is false?

Which of the following is not a potential cause of liquidity risk for a DI?

The maturity ladder model allows a comparison of cash inflows and cash outflows over a series of specified time periods.

Bank panic refers to a contagious run on the deposits of:

Distinguish between liquidity risk arising from the asset side and the liability side of the balance sheet.

Which of the following statements is true?

An FI's financing gap is the difference between an FI's:

Trend liquidity planning calculates an FI's liquidity need as the simple difference between the FI's liquid assets and its volatile sources of funds.

As part of the Basel III liquidity reforms the RBA will establish a secure committed liquidity facility.

Which of the following is not a component of liquidity planning?

Core deposits are those deposits that provide a DI with a long-term funding source

Assume that an FI's average loan value is $500 and the average value of deposits is $450.The FI has liquid assets of $50.What is the FI's financing gap?

Contingent liquidity needs refers to the liquidity needs necessary to:

Which of the following statements is true?

In 2010, the Bank for International Settlements (BIS) developed two new liquidity ratios to be maintained by DIs, namely, the liquidity coverage ratio (LCR) and a net stable funds ratio (NSFR)

What are the main components of a liquidity plan? Discuss the vital role such a plan plays in reducing liquidity risk.

Fire-sale price refers to the price received for an asset that has to be sold at half price.

Purchased 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