Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Managing asset-side liquidity risk can involve either purchased liquidity management or stored liquidity management.

Accepted Answer

A) True 
 B)False

Question 3

In the event of a bank run, depositor claims on the bank are satisfied on a pro rata basis.

Accepted Answer

A) True 
 B)False

Question 4

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 5

The liquidity coverage ratio (LCR)  and net stable funding ratio (NSFR)  proposed by the Bank for International Settlements are scheduled to take effect in

Accepted Answer

A)  2011 for LCR and 2014 for NSFR.
B)  2012 for both LCR and NSFR.
C)  2015 for LCR and 2018 for NSFR.
D)  2013 for LCR and 2016 for NSFR.
E)  2014 for both LCR and NSFR.F) None of the above
G) A) and B) C

Question 6

Which of the following observations concerning the Fed's discount window is true?

Accepted Answer

A)  The facility is provided to meet DIs' permanent liquidity needs.
B)  Four lending programs are offered through the Fed's discount window.
C)  Primary credit is available to sound depository institutions on a very short-term basis.
D)  Secondary credit is available only to depository institutions that are eligible for primary credit.
E)  Eligible institutions for seasonal credit are big banks located in urban areas.F) A) and D)
G) A) and C)

Question 7

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

Accepted Answer

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

Question 8

Core deposits represent a relatively short-term source of funds.

Accepted Answer

A) True 
 B)False  False

Question 9

When banks use stored liquidity management, they

Accepted Answer

A)  must pay interest on the funds that are stored.
B)  store the funds at the U.S.Treasury.
C)  necessarily increase the asset side of the balance sheet.
D)  may shrink the balance sheet if cash is used as the liquidity adjustment mechanism.
E)  threaten the capital position of the institution.F) B) and E)
G) D) and E)

Question 10

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) A) and E)
G) A) and D)

Question 11

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) A) and D)
G) A) and C)

Question 12

What is the drawback of deposit insurance facility?

Accepted Answer

A)  Even when the DI is in trouble, the deposit holder has no incentive to run.
B)  DIs are more likely to increase the liquidity risk on their balance sheets.
C)  Deposit holder's place in line affects his or her ability to obtain their funds.
D)  Deposit insurance does not deter contagious runs and panics.
E)  Deposit holders are less likely to panic if there is a perceived bank solvency problem.F) A) and E)
G) C) and D)

Question 13

The future liquidity position of a DI cannot be forecasted.

Accepted Answer

A) True 
 B)False

Question 14

An FI has $5 million in cash reserves with the Fed in excess of its reserve requirements, $5 million in T-Bills, and a credit line of $10 million to borrow in the repo market. It currently has lent $2 million in the Fed Funds market and borrowed $1 million from the Federal discount window to meet its seasonal needs.
-What are the bank's current total uses of liquidity?

Accepted Answer

A)  $1 million.
B)  $3 million.
C)  $8 million.
D)  $10 million.
E)  $15 million.F) A) and D)
G) A) and B)

Question 15

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 16

Which of the following statements is true?

Accepted Answer

A)  Closed-end funds issue an unlimited number of shares as liabilities.
B)  Open-end funds supply limited number of shares to investors.
C)  Open-end funds need not stand ready to buy back previously issued shares from investors at the current market price for the fund's shares.
D)  At a given market price, the supply of open-end fund shares is perfectly inelastic.
E)  The number of outstanding shares of a closed-ended fund may change when the issuing fund chooses to repurchase them.F) B) and C)
G) A) and E)

Question 17

In a crisis, which of the following are more likely to withdraw funds quickly from banks and thrifts?

Accepted Answer

A)  Correspondent banks.
B)  Small business corporations.
C)  Individual depositors.
D)  Mutual funds.
E)  Foreign depositors.F) C) and D)
G) A) and B)

Question 18

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) C) and E)
G) A) and E)

Question 19

Liquid funds can be obtained by a DI through unlimited borrowing in the money or purchased funds markets.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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

Exam 12: Liquidity Risk

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

Correct Answer
verified

Managing asset-side liquidity risk can involve either purchased liquidity management or stored liquidity management.

Correct Answer
verified

In the event of a bank run, depositor claims on the bank are satisfied on a pro rata basis.

Correct Answer
verified

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

Correct Answer
verified

The liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) proposed by the Bank for International Settlements are scheduled to take effect in

Correct Answer
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C

Which of the following observations concerning the Fed's discount window is true?

Correct Answer
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In terms of liquidity risk measurement, the financing requirement is defined as

Correct Answer
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Core deposits represent a relatively short-term source of funds.

Correct Answer
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False

When banks use stored liquidity management, they

Correct Answer
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When comparing banks and mutual funds,

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

Correct Answer
verified

What is the drawback of deposit insurance facility?

Correct Answer
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The future liquidity position of a DI cannot be forecasted.

Correct Answer
verified

Correct Answer
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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.

Correct Answer
verified

Which of the following statements is true?

Correct Answer
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In a crisis, which of the following are more likely to withdraw funds quickly from banks and thrifts?

Correct Answer
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What is a fire-sale price?

Correct Answer
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Liquid funds can be obtained by a DI through unlimited borrowing in the money or purchased funds markets.

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

Correct Answer
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A

Exam 12: Liquidity Risk

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

Correct AnswerverifiedShow Answer

Managing asset-side liquidity risk can involve either purchased liquidity management or stored liquidity management.

Correct AnswerverifiedShow Answer

In the event of a bank run, depositor claims on the bank are satisfied on a pro rata basis.

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 liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) proposed by the Bank for International Settlements are scheduled to take effect in

Correct AnswerverifiedC

Which of the following observations concerning the Fed's discount window is true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Core deposits represent a relatively short-term source of funds.

Correct AnswerverifiedFalse

When banks use stored liquidity management, they

Correct AnswerverifiedShow Answer

When comparing banks and mutual funds,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the drawback of deposit insurance facility?

Correct AnswerverifiedShow Answer

The future liquidity position of a DI cannot be forecasted.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

In a crisis, which of the following are more likely to withdraw funds quickly from banks and thrifts?

Correct AnswerverifiedShow Answer

What is a fire-sale price?

Correct AnswerverifiedShow Answer

Liquid funds can be obtained by a DI through unlimited borrowing in the money or purchased funds markets.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedA

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C

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False

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A