Question 1

Government securities represent the reserve asset fund for life insurance companies.

Accepted Answer

A) True 
 B)False

Question 2

Demand deposits pose a liquidity risk for FIs because funds may be withdrawn at any time.

Accepted Answer

A) True 
 B)False

Question 3

What is the impact of a 50 basis point increase in interest rates on the net asset value of an open-end bond mutual fund holding a seven year, $100 million face value 7 percent annual coupon bond selling at par? The fund has 10 million shares.

Accepted Answer

A)  An increase of $0.24 per share.
B)  A decrease of $0.265 per share.
C)  An increase of $0.05 per share.
D)  A decrease of $0.05 per share.
E)  An increase of $0.265 per share.F) B) and C)
G) B) and D)

Question 4

In terms of liquidity risk measurement, the financing gap is defined as

Accepted Answer

A)  total deposits minus core deposits.
B)  financing requirement plus liquid assets.
C)  rate sensitive assets minus rate sensitive liabilities.
D)  total assets minus total liabilities.
E)  average loans minus average deposits.F) D) and E)
G) A) and E)

Question 5

If purchased liquidity is used by a DTI to fund an exercised loan commitment

Accepted Answer

A)  the balance sheet will decrease by the amount of the new loan.
B)  only the asset side of the balance sheet will increase.
C)  the balance sheet will increase by the amount of the new loan.
D)  only the liability side of the balance sheet will increase.
E)  there will be no effect on the balance sheet.F) A) and D)
G) C) and E)

Question 6

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.
E)  A $100,000 increase in liabilities.F) B) and E)
G) All of the above

Question 7

Mutual funds tend to have less exposure to liquidity risk than banks and credit unions.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is a measure of the potential losses an FI could suffer as the result of fire-sale disposal of assets?

Accepted Answer

A)  Quick ratio.
B)  Liquidity index.
C)  Financing gap and financing requirement.
D)  Peer group ratio.
E)  Current ratio.F) B) and D)
G) C) and D)

Question 9

Deposit insurance is the only deterrent to bank runs, contagious runs, and bank panics.

Accepted Answer

A) True 
 B)False

Question 10

What information does the net liquidity statement provide?

Accepted Answer

A)  A long-term focus on liquidity.
B)  Sources and uses of liquidity.
C)  Net asset value.
D)  Liquidity index information.
E)  Peer group ratio comparison.F) C) and E)
G) A) and C)

Question 11

An expected net deposit drain on any given day means that deposit withdrawals are less than deposit inflows.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

As of 2012, banks must report their The Liquidity Coverage Ratio (LCR) to the CDIC rather than to OSFI.

Accepted Answer

A) True 
 B)False

Question 14

What is a fire-sale price?

Accepted Answer

A)  Market value of an asset.
B)  Price received for an asset that has to be liquidated immediately.
C)  Maximum price that will be received on sale of an asset irrespective of the time of sale.
D)  Replacement value of an asset.
E)  Book value of an asset.F) A) and C)
G) All of the above

Question 15

When comparing banks and mutual funds,

Accepted Answer

A)  mutual funds have more liquidity risk than banks because all shareholders share the loss of value on a pro rata basis.
B)  mutual funds have less liquidity risk than banks because all shareholders share the loss of value on a pro rata basis.
C)  mutual funds have more liquidity risk than banks because all shareholders have the ability to withdraw their money on a first-come first basis.
D)  mutual funds have less liquidity risk than banks because all shareholders have the ability to withdraw their money on a first-come first basis.
E)  mutual funds have the same liquidity risk as banks because both shareholders and depositors share the fall in the loss of value on a pro rata basis.F) All of the above
G) A) and E)

Question 16

Net asset value is the current value of a mutual fund's assets divided by the number of shares outstanding.

Accepted Answer

A) True 
 B)False

Question 17

For a DI, what does a high ratio of loans to deposits indicate?

Accepted Answer

A)  DTI relies heavily on the short-term money market to fund loans.
B)  High degree of loan commitments.
C)  DTI has large amounts of asset-side liquidity.
D)  Liquidity concerns are at a bare minimum for the FI.
E)  DTI relies heavily on core deposits to fund loans.F) A) and E)
G) C) and D)

Question 18

Which of the following observations is NOT true?

Accepted Answer

A)  Traditionally, DTI managers have relied on purchased liquidity management as the primary mechanism of liquidity management.
B)  Today, many DTIs rely on purchased liquidity management to deal with the risk of cash shortfalls.
C)  The largest banks with access to the money market and other nondeposit markets for funds rely on purchased liquidity management to deal with the risk of cash shortfalls.
D)  Purchased liquidity management and stored liquidity management are ways of managing a drain on deposits.
E)  None of these.F) None of the above
G) A) and E)

Question 19

Liquidity risk for an FI includes the possibility of an unexpected inflow of funds.

Accepted Answer

A) True 
 B)False

Question 20

The Bank of Canada maintains lending programs to assist members of the Canada Payments System in managing liquidity problems.

Accepted Answer

A) True 
 B)False

Exam 12: Liquidity Risk

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

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Which of the following is a measure of the potential losses an FI could suffer as the result of fire-sale disposal of assets?

Correct AnswerverifiedShow Answer

Demand deposits pose a liquidity risk for FIs because funds may be withdrawn at any time.

Correct AnswerverifiedShow Answer

For a DI, what does a high ratio of loans to deposits indicate?

Correct AnswerverifiedShow Answer

When comparing banks and mutual funds,

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

In terms of liquidity risk measurement, the financing gap is defined as

Correct AnswerverifiedShow Answer

What is a fire-sale price?

Correct AnswerverifiedShow Answer

An expected net deposit drain on any given day means that deposit withdrawals are less than deposit inflows.

Correct AnswerverifiedShow Answer

The Bank of Canada maintains lending programs to assist members of the Canada Payments System in managing liquidity problems.

Correct AnswerverifiedShow Answer

Government securities represent the reserve asset fund for life insurance companies.

Correct AnswerverifiedShow Answer

What information does the net liquidity statement provide?

Correct AnswerverifiedShow Answer

Net asset value is the current value of a mutual fund's assets divided by the number of shares outstanding.

Correct AnswerverifiedShow Answer

Liquidity risk for an FI includes the possibility of an unexpected inflow of funds.

Correct AnswerverifiedShow Answer

Mutual funds tend to have less exposure to liquidity risk than banks and credit unions.

Correct AnswerverifiedShow Answer

As of 2012, banks must report their The Liquidity Coverage Ratio (LCR) to the CDIC rather than to OSFI.

Correct AnswerverifiedShow Answer

What is the impact of a 50 basis point increase in interest rates on the net asset value of an open-end bond mutual fund holding a seven year, $100 million face value 7 percent annual coupon bond selling at par? The fund has 10 million shares.

Correct AnswerverifiedShow Answer

If purchased liquidity is used by a DTI to fund an exercised loan commitment

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Which of the following observations is NOT true?

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Deposit insurance is the only deterrent to bank runs, contagious runs, and bank panics.

Correct AnswerverifiedShow Answer

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