Exam 11: Liquidity and Reserves Management: Strategies and Policies

Which of the following is not a reason for banks to hold liquid assets?

The Hollingsworth National Bank maintains an average clearing balance of $7,000,000 with the Federal Reserve.The Federal Funds rate is currently 5.25 percent.What is the credit the bank will earn over the maintenance period that can be used to offset any fees charged by the Federal Reserve?

Asset liquidity management (asset conversion)involves storing liquidity in assets,such as land and buildings.

A bank is required to maintain an average daily balance at the Fed of $600 million.In the first 2 days of the maintenance period,it maintains a balance of $450 million,the next three days it maintains a balance of $700 million,the next two days it maintains a balance of $650 million,the next three days it maintains a balance of $450 million,and the next three days it maintains a balance of $650 million.What does its balance at the Fed has to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit?

The Harmony Bank of the South has just increased its Federal Funds Purchases.What source of liquidity does this represent to the bank?

The daily average amount of deposits and other reservable liabilities are computed using information gathered over a two-week period extending from a Tuesday to a Monday two weeks later.This interval is known as ___________.

A bank is required to maintain an average daily balance at the Fed of $700 million.On the first day of the maintenance period it maintains a balance of $750 million,the next two days it maintains a balance of $725 million,the next three days it maintains a balance of $625 million,the next three days it maintains a balance of $775 million,the next two days it maintains a balance of $700 million,and the next two days it maintains a balance of $675 million.What does its balance at the Fed has to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit?

Robberies of cash from banks have declined in recent years.

According to the textbook,banks making heavy use of borrowed sources of liquidity must wrestle with the problem of interest cost uncertainty.

_________________________ are the deposits and other borrowings of a bank which are very interest sensitive or the ones bank is sure will be withdrawn during the current period.

Liquid assets generally have a stable price but are not necessarily reversible.

The Hora National Bank has just received notice that a large depositor with the bank wants to close its account immediately.Which type of factor affecting legal reserves is this for the bank?

_________________________ is a 14 day period stretching from a Thursday to a Wednesday.This is the period in which a bank has to keep its average daily level of required reserves for a particular computation period with the Federal Reserve bank in the region.

A(n)_________________________ is a service developed by banks where a bank shifts money overnight out of accounts with reserve requirements into savings accounts and other similar accounts with no reserve requirements

The Shirley State Bank has $90 million in transaction deposits subject to legal reserves.The bank must hold 3 percent legal reserves up to $43.9 million of transaction deposits and 10 percent legal reserves on any amount above this.What is the bank's total legal reserve requirement?

One of the problems with liquidity management for a bank is that rarely does the demand for funds equals the supply of funds at a given time.

A bank or financial service institution can meet reserve requirements by selling Treasury securities in its portfolio.

A manager that examines the bank's stock price behavior and risk premium on the CDs to measure liquidity position is using:

According to the textbook,the management of a bank expects to lose its "hot money" liabilities during a period.

_________________________ is a strategy in which a financial institution borrows in the money market to meet its liquidity needs.