Question 1

Funding costs generally are positively related to the period of time the liability remains on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 2

The increased securitization of bank loans has reduced the liquidity of bank assets.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

What is the average implicit interest rate on a $100,000 account if the bank's average management costs are $2,500 and annual fees average $1,750?

Accepted Answer

A) 4.25 percent. 
B) 2.50 percent. 
C) 1.75 percent. 
D) 0.75 percent. 
E) -0.75 percent. 
A) 4.25 percent. 
B) 2.50 percent. 
C) 1.75 percent. 
D) 0.75 percent. 
E) -0.75 percent.

Question 5

Reliance on purchased or borrowed funds will largely eliminate the liquidity risk faced by a bank.

Accepted Answer

A) True 
 B)False

Question 6

Recently banks have changed the liability structure towards instruments that have less withdrawal risk and higher explicit interest costs.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is an outcome of a decrease in the reserve requirement ratio?

Accepted Answer

A) DTIs must hold more reserves against the transaction accounts on their balance sheets. 
B) DTIs are able to lend a smaller percentage of their deposits. 
C) Decreased credit availability in the economy. 
D) A multiple contraction in deposits and a decrease in the money supply. 
E) A multiplier effect on the supply of DTI deposits and thus, the money supply. 
A) DTIs must hold more reserves against the transaction accounts on their balance sheets. 
B) DTIs are able to lend a smaller percentage of their deposits. 
C) Decreased credit availability in the economy. 
D) A multiple contraction in deposits and a decrease in the money supply. 
E) A multiplier effect on the supply of DTI deposits and thus, the money supply.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is considered to be the most liquid asset?

Accepted Answer

A) T-notes. 
B) T-bills. 
C) Cash. 
D) T-bonds. 
E) Wholesale GICs. 
A) T-notes. 
B) T-bills. 
C) Cash. 
D) T-bonds. 
E) Wholesale GICs.

Question 10

In most countries, assets used to satisfy the liquid assets ratio may include liquid government securities.

Accepted Answer

A) True 
 B)False

Question 11

To reduce liquidity risk an FI can efficiently manage the liability structure of its portfolio.

Accepted Answer

A) True 
 B)False

Question 12

A liquid asset can be converted to cash quickly, but will require a discount from market value.

Accepted Answer

A) True 
 B)False

Question 13

Because of penalties imposed for early withdrawal, a GIC depositor is unlikely to withdrawal the GIC funds from the bank before maturity.

Accepted Answer

A) True 
 B)False

Question 14

Because retail GICs have fixed maturities, FI managers always should have perfect information regarding the scheduling of interest and principal payments.

Accepted Answer

A) True 
 B)False

Question 15

If the fees charged on demand deposit accounts do not cover the cost of providing demand deposit services, the bank receives a subsidy or implicit interest payment.

Accepted Answer

A) True 
 B)False

Question 16

In the U.S. excess reserves held at the central bank pay interest to the DTI.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is an outcome of an increase in the reserve requirement ratio?

Accepted Answer

A) DTIs may hold fewer reserves against their transaction accounts. 
B) DTIs are able to lend out a greater percentage of their deposits. 
C) Increased credit availability in the economy. 
D) DTIs are only able to lend a smaller percentage of their deposits than before. 
E) A multiplier effect on the supply of DTI deposits and thus the money supply. 
A) DTIs may hold fewer reserves against their transaction accounts. 
B) DTIs are able to lend out a greater percentage of their deposits. 
C) Increased credit availability in the economy. 
D) DTIs are only able to lend a smaller percentage of their deposits than before. 
E) A multiplier effect on the supply of DTI deposits and thus the money supply.

Question 18

Savings accounts are less liquid than demand deposit accounts.

Accepted Answer

A) True 
 B)False

Exam 18: Liability and Liquidity Management

Funding costs generally are positively related to the period of time the liability remains on the balance sheet.

The increased securitization of bank loans has reduced the liquidity of bank assets.

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

What is the average implicit interest rate on a $100,000 account if the bank's average management costs are $2,500 and annual fees average $1,750?

Reliance on purchased or borrowed funds will largely eliminate the liquidity risk faced by a bank.

Recently banks have changed the liability structure towards instruments that have less withdrawal risk and higher explicit interest costs.

Which of the following is an outcome of a decrease in the reserve requirement ratio?

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

Which of the following is considered to be the most liquid asset?

In most countries, assets used to satisfy the liquid assets ratio may include liquid government securities.

To reduce liquidity risk an FI can efficiently manage the liability structure of its portfolio.

A liquid asset can be converted to cash quickly, but will require a discount from market value.

Because of penalties imposed for early withdrawal, a GIC depositor is unlikely to withdrawal the GIC funds from the bank before maturity.

Because retail GICs have fixed maturities, FI managers always should have perfect information regarding the scheduling of interest and principal payments.

If the fees charged on demand deposit accounts do not cover the cost of providing demand deposit services, the bank receives a subsidy or implicit interest payment.

In the U.S. excess reserves held at the central bank pay interest to the DTI.

Which of the following is an outcome of an increase in the reserve requirement ratio?

Savings accounts are less liquid than demand deposit accounts.

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