Question 1

A corporation informs the bank that it will immediately draw down the maximum amount on its credit line. This is an example of liability side risk.

Accepted Answer

A) True 
 B)False

Question 2

The BIS recommends that depository institutions do which of the following to realistically measure liquidity risk?
I. Construct a maturity ladder of funding requirements over both the short and long run.
II. Conduct scenario analyses of the bank's implied liquidity position under different bank and economic conditions.
III. Always keep the loan-to-deposit ratio less than one.

Accepted Answer

A)  I only
B)  II only
C)  I and II only
D)  II and III only
E)  I,II,and IIIF) D) and E)
G) A) and D)

Question 3

The two main reasons why runs on U.S. banks no longer occur are

Accepted Answer

A)  reserve requirements and higher bank liquidity ratios.
B)  a required positive financing gap and bank use of purchased liquidity.
C)  the FDIC and the discount window.
D)  insurance funds operated by individual states and tighter bank regulations.
E)  none of the options.F) A) and E)
G) B) and E)

Question 4

The greater the _________________ ratio,the more liquid is the institution,ceteris paribus.

Accepted Answer

A)  borrowed funds to total assets
B)  core deposits to total assets
C)  loans to deposits
D)  unused commitments to lend to total assets
E)  unused commitments to lend to liquid assetsF) None of the above
G) A) and E)

Question 5

A financial intermediary has two assets in its investment portfolio. It has 35 percent of its security portfolio invested in one-month Treasury bills and 65 percent in real estate loans. If it liquidated the bills today,the bank would receive $98 per hundred of face value. If the real estate loans were sold today,they would be worth $85 per 100 of face value. In one month,the real estate loans could be liquidated at $94 per 100 of face value. What is the intermediary's one-month liquidity index?

Accepted Answer

A)  0.93
B)  0.92
C)  0.91
D)  0.90
E)  0.89F) B) and D)
G) A) and B)

Question 6

Bank A has a loan-to-deposit ratio of 110 percent,core deposits equal 55 percent of total assets,and borrowed funds are 25 percent of assets. Bank B has a loan-to-deposit ratio of 80 percent. Core deposits are 65 percent of assets and borrowed funds are 5 percent of assets. Which bank has more liquidity risk? Ceteris paribus,which bank will probably be more profitable when interest rates are low?

Accepted Answer

A)  Bank A; Bank A
B)  Bank A; Bank B
C)  Bank B; Bank A
D)  Bank B; Bank B
E)  You can't tellF) B) and E)
G) D) and E)

Question 7

Does a positive or a negative financing gap indicate greater liquidity risk?
 Explain.

Accepted Answer

A positive financing gap indicates that ...

Exam 21: Managing Liquidity Risk on the Balance Sheet

Correct Answer
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A corporation informs the bank that it will immediately draw down the maximum amount on its credit line. This is an example of liability side risk.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The greater the _________________ ratio,the more liquid is the institution,ceteris paribus.

Correct Answer
verified

The two main reasons why runs on U.S. banks no longer occur are

Correct Answer
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Does a positive or a negative financing gap indicate greater liquidity risk? Explain.

Correct Answer
verified
A positive financing gap indicates that ...
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Exam 21: Managing Liquidity Risk on the Balance Sheet

Correct AnswerverifiedShow Answer

A corporation informs the bank that it will immediately draw down the maximum amount on its credit line. This is an example of liability side risk.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The greater the _________________ ratio,the more liquid is the institution,ceteris paribus.

Correct AnswerverifiedShow Answer

The two main reasons why runs on U.S. banks no longer occur are

Correct AnswerverifiedShow Answer

Does a positive or a negative financing gap indicate greater liquidity risk? Explain.

Correct AnswerverifiedA positive financing gap indicates that ...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified
A positive financing gap indicates that ...
View Answer