Exam 19: Liability and Liquidity Management

The nonreserve assets that can be quickly turned into cash is referred to as the reserve requirement ratio.

In most countries, regulators often set minimum liquid reserve requirements on FIs.

Passbook savings accounts are less liquid than demand deposit accounts.

Deposits with low withdrawal risk typically are the lowest cost deposits for a DI.

Federal Reserve primary credit loans available to DIs are generally at rates lower than the federal funds target rate.

A bank has an average balance of transactions accounts, August 10 to 23, of $824.46 million.The average balance in the cash account is $42.014 million over this period.The bank is carrying forward a deficit of $1.276 million from the last reserve period.The rules require no reserves to be maintained for the first $8.5 million, 3 percent for amounts between $8.5 million and $45.8 million, and 10 percent thereafter. The maximum reserves that will count toward the next reserve maintenance period, September 23 to October 6, is

NOW accounts allow the explicit payment of interest.

The interest rate paid on money market deposit accounts by U.S.DIs must directly reflect the rates earned on investments in commercial paper, bankers acceptances, repurchase agreement, and T-bills.

Property-casualty insurance companies typically have greater liquidity risk than life insurance companies.

For reserve calculation purposes, the period that begins on a Tuesday and ends on a Monday 14 days later is known as

Requiring minimum reserves to be held at the central bank is the equivalent of

Which of the following liabilities have a high degree of withdrawal risk?

An accounting system in which the reserve computation and reserve maintenance periods do not overlap is called?

Although they are subject to reserve requirements, many DIs have begun to issue medium-term notes because they are a stable source of funds.

Managing the reserve position of a U.S.bank requires knowing

Short-term CDs often are priced competitively with T-bills of similar maturity.

One method of reducing the risk of a liquidity crisis for an FI to efficiently manage liquid asset positions.

A sweep account is a strategy that Dis offer customers where a high reserve ratio demand deposits are automatically transferred out of customer's accounts on Friday into higher-interest-bearing savings accounts.

Why do FIs face a return or interest earnings penalty by holding large amounts of assets such as cash, T-bills, and T-bonds to reduce liquidity risk?

Retail CDs are time deposits with a face value below $100,000.