Exam 19: Liability and Liquidity Management

As of August 2015, required reserve ratios in the U.S.for demand deposits were

The contemporaneous reserve accounting system requires the maintenance period to occur simultaneously with the computation period.

Which of the following rankings of liabilities is correct if they are ranked by funding costs from lowest cost to highest cost?

Because the minimum amount of a negotiable wholesale CD is $100,000, holders of these CDs are fully covered by FDIC insurance.

Managing a bank's reserve position requires knowing only the target reserve ratio and the period over which reserves must be maintained.

Excessive illiquidity can result in an FI's inability to meet required payments on liability claims and, at the extreme, in insolvency.

The cost of holding reserves that pay no or little interest at the central bank is referred to as the requirement tax.

Because of the collateral feature, RPs typically have a higher interest rate than fed funds.

The minimum average daily reserves required in a maintenance period is a percentage of the daily average demand deposits held by a bank during the computation period.

One method of increasing reserves to meet a reserve target is to sell liquid assets.

One cost of demand deposits to DIs is the reserve requirement placed on the bank by the Federal Reserve.

NOW accounts are potentially less prone to withdrawal risk than demand deposits.

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. What is the gross reserve requirement?

Which of the following rankings of liabilities is correct if they are ranked by withdrawal risk from riskiest to least risky?

Which of the following observations concerning the federal funds rate is NOT true?

One reason FIs such as depository institutions and life insurance companies are exposed to liquidity risk is the relatively illiquid nature of their liabilities.

Under contemporaneous reserve accounting the

A NOW account requires a minimum monthly balance of $500 if annual interest of 5 percent is to be earned monthly on its deposits.An account holder has maintained an average balance of $300 for the first nine months of the year and $800 for the last three months of the year.She has written an average of 20 checks a month and is not charged for these services.However, it costs the bank $0.02 to process each check. The bank would like to limit the average return (both explicit and implicit) earned by the account holder to 5 percent per year.How much should it charge for processing each check to this Account holder assuming that it will pay annual interest of 5 percent and minimum balances of $200 are maintained?

Why are passbook savings generally less liquid than demand deposits and NOW accounts?

Currently the reserve maintenance period begins 30 days after the end of the reserve computation period.