Question 1

Which of the following equations correctly defines an FI's financing requirements?

Accepted Answer

A) Average loans - average deposits 
B) Average deposits - average loans 
C) Average loans - average deposits + liquid assets 
D) Financing gap - liquid assets 
A) Average loans - average deposits 
B) Average deposits - average loans 
C) Average loans - average deposits + liquid assets 
D) Financing gap - liquid assets

Question 2

Which of the following statements is true in the context of the liquidity index?

Accepted Answer

A) The greater the difference between immediate fire-sale asset prices and fair market value prices, the more liquid is the FI's portfolio of assets. 
B) The greater the difference between immediate fire-sale asset prices and fair market value prices, the less liquid is the FI's portfolio of assets. 
C) The smaller the difference between immediate fire-sale asset prices and fair market value prices, the less liquid is the FI's portfolio of assets. 
D) None of the listed options are correct. 
A) The greater the difference between immediate fire-sale asset prices and fair market value prices, the more liquid is the FI's portfolio of assets. 
B) The greater the difference between immediate fire-sale asset prices and fair market value prices, the less liquid is the FI's portfolio of assets. 
C) The smaller the difference between immediate fire-sale asset prices and fair market value prices, the less liquid is the FI's portfolio of assets. 
D) None of the listed options are correct.

Question 3

Which of the following statements is true?

Accepted Answer

A) Under the BIS scenario analysis, an FI needs to assess its liquidity position in comparison to other FIs in the market based on different scenarios. 
B) Under the BIS scenario analysis, an FI needs to estimate the size of cash flows for each type of asset and liability based on past experience. 
C) Under the BIS scenario analysis, an FI needs to assign a timing of cash flows for each type of asset and liability by assessing the probability of behaviour of those cash flows under the scenario being examined. 
D) None of the listed options are correct. 
A) Under the BIS scenario analysis, an FI needs to assess its liquidity position in comparison to other FIs in the market based on different scenarios. 
B) Under the BIS scenario analysis, an FI needs to estimate the size of cash flows for each type of asset and liability based on past experience. 
C) Under the BIS scenario analysis, an FI needs to assign a timing of cash flows for each type of asset and liability by assessing the probability of behaviour of those cash flows under the scenario being examined. 
D) None of the listed options are correct.

Question 4

When comparing banks and mutual funds, mutual funds have:

Accepted Answer

A) more liquidity risk than banks because all shareholders share the loss of value on a pro rata basis 
B) less liquidity risk than banks because all shareholders share the loss of value on a pro rata basis 
C) more liquidity risk than banks because all shareholders have the ability to withdraw their money on a 'first come first served' basis 
D) the same liquidity risk as banks because both shareholders and depositors share the fall in the loss of value on a pro rata basis 
A) more liquidity risk than banks because all shareholders share the loss of value on a pro rata basis 
B) less liquidity risk than banks because all shareholders share the loss of value on a pro rata basis 
C) more liquidity risk than banks because all shareholders have the ability to withdraw their money on a 'first come first served' basis 
D) the same liquidity risk as banks because both shareholders and depositors share the fall in the loss of value on a pro rata basis

Question 5

Which of the following statements is true?

Accepted Answer

A) The financing requirement is the financing gap plus an FI's liquid assets. 
B) The financing requirement is the financing gap minus an FI's liquid assets. 
C) The financing requirement is the financing gap multiplied by an FI's liquid assets. 
D) The financing requirement is the financing gap divided by an FI's liquid assets 
A) The financing requirement is the financing gap plus an FI's liquid assets. 
B) The financing requirement is the financing gap minus an FI's liquid assets. 
C) The financing requirement is the financing gap multiplied by an FI's liquid assets. 
D) The financing requirement is the financing gap divided by an FI's liquid assets

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

A disadvantage of using asset management to manage an FI's liquidity risk is:

Accepted Answer

A) the resulting shrinkage of the FI's balance sheet 
B) the high cost of purchased liabilities 
C) the accessibility of international money markets 
D) loss of flexibility as a result of dependence upon purchased liabilities 
A) the resulting shrinkage of the FI's balance sheet 
B) the high cost of purchased liabilities 
C) the accessibility of international money markets 
D) loss of flexibility as a result of dependence upon purchased liabilities

Question 8

Consider the following situation: an FI holds two assets in equal proportions, these being liquid securities with a fair market value of $200 and housing loans with a fair market value of $800.Further assume that in case of immediate liquidation, the FI would receive $185 for its liquid securities and $700 for its housing loans.What is the FI's liquidity index (round to two decimals)?

Accepted Answer

A) I = (185/200) + (700/800) = 1.80 
B) I = (185/200) * (700/800) = 0.81 
C) I = 0.5 * (185/200) + 0.5 * (700/800) = 0.90 
D) I = [0.5 * (185/200)] * [0.5 * (700/800)] = 0.20 
A) I = (185/200) + (700/800) = 1.80 
B) I = (185/200) * (700/800) = 0.81 
C) I = 0.5 * (185/200) + 0.5 * (700/800) = 0.90 
D) I = [0.5 * (185/200)] * [0.5 * (700/800)] = 0.20

Question 9

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 a loan commitment drawdown, what will be the impact on the balance sheet if stored liquidity management techniques are used?

Accepted Answer

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

Question 10

Which of the following statements is true?

Accepted Answer

A) A positive financing gap means that the FI must fund it by using its cash and liquid assets or by raising funds in the money market. 
B) A negative financing gap means that the FI must fund it by using its cash and liquid assets or by raising funds in the money market. 
C) A positive financing gap means that the FI has excess liquidity. 
D) A negative financing gap means that the FI is in need of liquidity. 
A) A positive financing gap means that the FI must fund it by using its cash and liquid assets or by raising funds in the money market. 
B) A negative financing gap means that the FI must fund it by using its cash and liquid assets or by raising funds in the money market. 
C) A positive financing gap means that the FI has excess liquidity. 
D) A negative financing gap means that the FI is in need of liquidity.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

What are the two main liquidity facilities available to Australian FIs to prevent financial disturbances occurring?

Accepted Answer

A) deposit insurance and the discount window 
B) intra-day repurchase agreement and overnight repurchase agreement 
C) financing gap and the financing requirement 
D) secondary credit and seasonal credit 
A) deposit insurance and the discount window 
B) intra-day repurchase agreement and overnight repurchase agreement 
C) financing gap and the financing requirement 
D) secondary credit and seasonal credit

Question 13

Which of the following statements is true?

Accepted Answer

A) 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. 
B) Traditionally, FI managers have relied on stored liquidity management as the primary mechanism of liquidity management. 
C) Today, there is a higher reliance on purchased liquidity management. 
D) All of the listed options are correct. 
A) 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. 
B) Traditionally, FI managers have relied on stored liquidity management as the primary mechanism of liquidity management. 
C) Today, there is a higher reliance on purchased liquidity management. 
D) All of the listed options are correct.

Question 14

Which of the following items may expose an FI to liquidity risk?

Accepted Answer

A) $500 000 in demand deposits and $100 000 in overnight deposits made by another FI 
B) $500 000 in demand deposits and $50 000 in credit line facilities 
C) $500 000 in demand deposits, $100 000 in loan commitments and $50 000 in short-term securities 
D) $500 000 in demand deposits, $100 000 in overnight deposits made by another FI and $50 000 in credit line facilities 
A) $500 000 in demand deposits and $100 000 in overnight deposits made by another FI 
B) $500 000 in demand deposits and $50 000 in credit line facilities 
C) $500 000 in demand deposits, $100 000 in loan commitments and $50 000 in short-term securities 
D) $500 000 in demand deposits, $100 000 in overnight deposits made by another FI and $50 000 in credit line facilities

Question 15

Australia has recently developed a market for deposit insurance guarantee that protects deposit accounts.

Accepted Answer

A) True 
 B)False

Question 16

Net deposit drains refer to the amount by which cash withdrawals:

Accepted Answer

A) are less than additions-this is a cash outflow 
B) are less than additions-this is a cash inflow 
C) exceed additions-this is a cash outflow 
D) exceed additions-this is a cash inflow 
A) are less than additions-this is a cash outflow 
B) are less than additions-this is a cash inflow 
C) exceed additions-this is a cash outflow 
D) exceed additions-this is a cash inflow

Which of the following equations correctly defines an FI's financing requirements?

Which of the following statements is true in the context of the liquidity index?

Which of the following statements is true?

When comparing banks and mutual funds, mutual funds have:

Which of the following statements is true?

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 disadvantage of using asset management to manage an FI's liquidity risk is:

Which of the following statements is true?

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

What are the two main liquidity facilities available to Australian FIs to prevent financial disturbances occurring?

Which of the following statements is true?

Which of the following items may expose an FI to liquidity risk?

Australia has recently developed a market for deposit insurance guarantee that protects deposit accounts.

Net deposit drains refer to the amount by which cash withdrawals:

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 equations correctly defines an FI's financing requirements?

Which of the following statements is true in the context of the liquidity index?

Which of the following statements is true?

When comparing banks and mutual funds, mutual funds have:

Which of the following statements is true?

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 disadvantage of using asset management to manage an FI's liquidity risk is:

Which of the following statements is true?

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

What are the two main liquidity facilities available to Australian FIs to prevent financial disturbances occurring?

Which of the following statements is true?

Which of the following items may expose an FI to liquidity risk?

Australia has recently developed a market for deposit insurance guarantee that protects deposit accounts.

Net deposit drains refer to the amount by which cash withdrawals:

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