Question 1

17-94 What will be the cost of using a strategy of reducing its asset base to meet the expected decline in deposits? Assume that the bank intends to keep $2 million in cash as a liquidity precaution.

Accepted Answer

A)  $10,000.
B)  $15,000.
C)  $30,000.
D)  $40,000.
E)  $50,000.

Question 2

17-47 Hedge funds are not susceptible to liquidity risk or a liquidity crisis.

Accepted Answer

A) True 
 B)False

Question 3

17-35 In general,money center banks are exposed to less liquidity risk than smaller,regional banks.

Accepted Answer

A) True 
 B)False

Question 4

17-76 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.

Question 5

17-56 A disadvantage of using asset management to manage a 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)  tax considerations.
E)  loss of flexibility as a result of dependence upon purchased liabilities.

Question 6

17-90 What are the possible ways that the bank can meet an expected net deposit drain of +4 percent using stored liquidity management techniques?

Accepted Answer

A)  Liquidate all cash holdings.
B)  Utilize further the Fed funds market.
C)  Liquidate some securities and/or loans.
D)  Liquidate all cash and use more Fed funds.
E)  All of the above are suitable techniques.

Question 7

17-17 Managing asset-side liquidity risk can involve either purchased liquidity management or stored liquidity management.

Accepted Answer

A) True 
 B)False

Question 8

17-54 Which of the following observations is NOT true?

Accepted Answer

A)  Traditionally,DI managers have relied on purchased liquidity management as the primary mechanism of liquidity management.
B)  Today,many DIs 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 liability 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 the above.

Question 9

17-77 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.

Question 10

17-11 Asset-side liquidity risk may be a result of OBS lending commitments.

Accepted Answer

A) True 
 B)False

Question 11

17-41 Government securities represent the reserve asset fund for life insurance companies.

Accepted Answer

A) True 
 B)False

Question 12

17-84 A liquidity plan will include

Accepted Answer

A)  the size of potential deposit and fund withdrawals.
B)  a list of fund providers that are most likely to withdraw funds.
C)  the pattern of potential withdrawals.
D)  the details and responsibilities of management.
E)  All of the above.

Question 13

17-24 The relative time frame for active liquidity management is 2 to 4 months.

Accepted Answer

A) True 
 B)False

Question 14

17-92 If the bank experiences a $50,000 sudden liquidity drain caused by a loan commitment draw down,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 totaling $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.
E)  A decrease in lending of $50,000.

Question 15

17-87 The price at which an open-end investment fund stands ready to redeem existing shares is the

Accepted Answer

A)  strike price.
B)  face value.
C)  book value.
D)  net asset value.
E)  net worth.

Question 16

17-25 Liquidity planning primarily is designed to assist management in dealing with relatively predictable events.

Accepted Answer

A) True 
 B)False

Question 17

17-45 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 18

17-34 A contagious run,or bank panic,differs from a run on a bank in that a contagious run involves loss of faith in the entire banking system as opposed to just one bank.

Accepted Answer

A) True 
 B)False

Question 19

17-74 A DI has two assets: 50 percent in one-month Treasury bills and 50 percent in real estate loans.If the DI must liquidate its T-bills today,it receives $98 per $100 of face value; if it can wait to liquidate them on maturity (in one month's time) ,it will receive $100 per $100 of face value.If the DI has to liquidate its real estate loans today,it receives $90 per $100 of face value liquidation at the end of one month will produce $92 per $100 of face value.The one-month liquidity index value for this DI's asset portfolio is

Accepted Answer

A)  .973.
B)  .940.
C)  .979.
D)  1.06.
E)  1.10.

Question 20

17-19 High loan commitment banks face less liquidity risk exposure than low commitment banks.

Accepted Answer

A) True 
 B)False

Exam 17: Liquidity Risk

17-76 In terms of liquidity risk measurement,the financing gap is defined as

Correct Answer
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17-47 Hedge funds are not susceptible to liquidity risk or a liquidity crisis.

Correct Answer
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17-54 Which of the following observations is NOT true?

Correct Answer
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17-84 A liquidity plan will include

Correct Answer
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17-56 A disadvantage of using asset management to manage a FI's liquidity risk is

Correct Answer
verified

17-45 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

17-17 Managing asset-side liquidity risk can involve either purchased liquidity management or stored liquidity management.

Correct Answer
verified

17-87 The price at which an open-end investment fund stands ready to redeem existing shares is the

Correct Answer
verified

Correct Answer
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17-24 The relative time frame for active liquidity management is 2 to 4 months.

Correct Answer
verified

17-25 Liquidity planning primarily is designed to assist management in dealing with relatively predictable events.

Correct Answer
verified

17-90 What are the possible ways that the bank can meet an expected net deposit drain of +4 percent using stored liquidity management techniques?

Correct Answer
verified

17-11 Asset-side liquidity risk may be a result of OBS lending commitments.

Correct Answer
verified

17-35 In general,money center banks are exposed to less liquidity risk than smaller,regional banks.

Correct Answer
verified

17-77 In terms of liquidity risk measurement,the financing requirement is defined as

Correct Answer
verified

17-94 What will be the cost of using a strategy of reducing its asset base to meet the expected decline in deposits? Assume that the bank intends to keep $2 million in cash as a liquidity precaution.

Correct Answer
verified

17-34 A contagious run,or bank panic,differs from a run on a bank in that a contagious run involves loss of faith in the entire banking system as opposed to just one bank.

Correct Answer
verified

17-92 If the bank experiences a $50,000 sudden liquidity drain caused by a loan commitment draw down,what will be the impact on the balance sheet if stored liquidity management techniques are used?

Correct Answer
verified

17-41 Government securities represent the reserve asset fund for life insurance companies.

Correct Answer
verified

17-19 High loan commitment banks face less liquidity risk exposure than low commitment banks.

Correct Answer
verified

Exam 17: Liquidity Risk

17-76 In terms of liquidity risk measurement,the financing gap is defined as

Correct AnswerverifiedShow Answer

17-47 Hedge funds are not susceptible to liquidity risk or a liquidity crisis.

Correct AnswerverifiedShow Answer

17-54 Which of the following observations is NOT true?

Correct AnswerverifiedShow Answer

17-84 A liquidity plan will include

Correct AnswerverifiedShow Answer

17-56 A disadvantage of using asset management to manage a FI's liquidity risk is

Correct AnswerverifiedShow Answer

17-45 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

17-17 Managing asset-side liquidity risk can involve either purchased liquidity management or stored liquidity management.

Correct AnswerverifiedShow Answer

17-87 The price at which an open-end investment fund stands ready to redeem existing shares is the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

17-24 The relative time frame for active liquidity management is 2 to 4 months.

Correct AnswerverifiedShow Answer

17-25 Liquidity planning primarily is designed to assist management in dealing with relatively predictable events.

Correct AnswerverifiedShow Answer

17-90 What are the possible ways that the bank can meet an expected net deposit drain of +4 percent using stored liquidity management techniques?

Correct AnswerverifiedShow Answer

17-11 Asset-side liquidity risk may be a result of OBS lending commitments.

Correct AnswerverifiedShow Answer

17-35 In general,money center banks are exposed to less liquidity risk than smaller,regional banks.

Correct AnswerverifiedShow Answer

17-77 In terms of liquidity risk measurement,the financing requirement is defined as

Correct AnswerverifiedShow Answer

17-94 What will be the cost of using a strategy of reducing its asset base to meet the expected decline in deposits? Assume that the bank intends to keep $2 million in cash as a liquidity precaution.

Correct AnswerverifiedShow Answer

17-34 A contagious run,or bank panic,differs from a run on a bank in that a contagious run involves loss of faith in the entire banking system as opposed to just one bank.

Correct AnswerverifiedShow Answer

17-92 If the bank experiences a $50,000 sudden liquidity drain caused by a loan commitment draw down,what will be the impact on the balance sheet if stored liquidity management techniques are used?

Correct AnswerverifiedShow Answer

17-41 Government securities represent the reserve asset fund for life insurance companies.

Correct AnswerverifiedShow Answer

17-19 High loan commitment banks face less liquidity risk exposure than low commitment banks.

Correct AnswerverifiedShow Answer

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