Question 1

Liquidity risk can only arise on the asset-side of an FI's balance sheet as this means that the FI does not hold enough liquid assets such as cash or liquid securities.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following statements is false?

Accepted Answer

A)  It is difficult to isolate which part of past deposits and loan fluctuations is due to cyclical liquidity. 
B)  Forecasting future liquidity needs based on past patterns is always risky due to changes in seasonal patterns, regulation and economic conditions. 
C)  Liquidity planning tools typically ignore cyclical liquidity needs and liquidity needs due to FI confidence crises. 
D)  None of the listed options are correct. 
A)  It is difficult to isolate which part of past deposits and loan fluctuations is due to cyclical liquidity. 
B)  Forecasting future liquidity needs based on past patterns is always risky due to changes in seasonal patterns, regulation and economic conditions. 
C)  Liquidity planning tools typically ignore cyclical liquidity needs and liquidity needs due to FI confidence crises. 
D)  None of the listed options are correct. D

Question 3

Which of the following statements is true?

Accepted Answer

A)  The net asset value equals the total market value of the assets of the fund. 
B)  The net asset value equals the total market value of the assets of the fund divided by the number of shares in the funds outstanding. 
C)  The net asset value equals the number of shares in the funds outstanding divided by the total market value of the assets of the fund. 
D)  The net asset value equals the total market value of the assets of the fund multiplied by the number of shares in the funds outstanding. 
A)  The net asset value equals the total market value of the assets of the fund. 
B)  The net asset value equals the total market value of the assets of the fund divided by the number of shares in the funds outstanding. 
C)  The net asset value equals the number of shares in the funds outstanding divided by the total market value of the assets of the fund. 
D)  The net asset value equals the total market value of the assets of the fund multiplied by the number of shares in the funds outstanding. B

Question 4

Assume the value of an FI's average loans is $300 and the value of its average deposits is $400. The FI has liquid assets of $100. What is the FI's financing requirement?

Accepted Answer

A)  $400 - $300 - $100 = $0 
B)  $300 - $400 - $100 = -$200 
C)  $400 - $300 + $100 = $200 
D)  $300 - $400 + $100 = $0 
A)  $400 - $300 - $100 = $0 
B)  $300 - $400 - $100 = -$200 
C)  $400 - $300 + $100 = $200 
D)  $300 - $400 + $100 = $0

Question 5

Which of the following statements is true?

Accepted Answer

A)  In case of a liquidity crisis, depositors do not need to worry as the RBA will pay out any deficit balances. 
B)  In case of a liquidity crisis, any available balances will be divided equally among depositors. 
C)  In case of a liquidity crisis, any available balances will be divided proportionally to each depositor's investment. 
D)  In case of a liquidity crisis, the 'first comes, first serves' principle holds. 
A)  In case of a liquidity crisis, depositors do not need to worry as the RBA will pay out any deficit balances. 
B)  In case of a liquidity crisis, any available balances will be divided equally among depositors. 
C)  In case of a liquidity crisis, any available balances will be divided proportionally to each depositor's investment. 
D)  In case of a liquidity crisis, the 'first comes, first serves' principle holds.

Question 6

Consider a mutual fund with 100 shareholders who each invested $10 for a total of $1000. If the assets of the mutual fund are worth $900, what is the net asset value for each one of the mutual fund shares?

Accepted Answer

A)  $0.9 
B)  $9 
C)  $90 
D)  $10 
A)  $0.9 
B)  $9 
C)  $90 
D)  $10

Question 7

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 8

What are typical reasons for abnormal deposit drains?

Accepted Answer

A)  Concerns about an FI's solvency relative to other FIs. 
B)  Failure of a related FI leading to heightened depositor concerns about the solvency of other FIs. 
C)  Sudden changes in investor preferences regarding holding non-bank financial assets relative to deposits. 
D)  All of the listed options are correct. 
A)  Concerns about an FI's solvency relative to other FIs. 
B)  Failure of a related FI leading to heightened depositor concerns about the solvency of other FIs. 
C)  Sudden changes in investor preferences regarding holding non-bank financial assets relative to deposits. 
D)  All of the listed options are correct.

Question 9

Which of the following statements is true?

Accepted Answer

A)  An FI can manage a drain on deposits or an exercise of a loan commitment in two major ways, these being purchased liquidity management and stored liquidity management. 
B)  Traditionally, FI managers have relied on stored liquidity management as the primary mechanism of liquidity management. 
C)  Today, there is a higher reliance on purchased liquidity management. 
D)  All of the listed options are correct. 
A)  An FI can manage a drain on deposits or an exercise of a loan commitment in two major ways, these being purchased liquidity management and stored liquidity management. 
B)  Traditionally, FI managers have relied on stored liquidity management as the primary mechanism of liquidity management. 
C)  Today, there is a higher reliance on purchased liquidity management. 
D)  All of the listed options are correct.

Question 10

A bank run refers to a sudden:

Accepted Answer

A)  but expected increase in deposit withdrawals from an FI. 
B)  and unexpected increase in deposit withdrawals from an FI. 
C)  and unexpected increase in customers that wish to undertake business with the FI. 
D)  but expected increase in customers that wish to undertake business with the FI. 
A)  but expected increase in deposit withdrawals from an FI. 
B)  and unexpected increase in deposit withdrawals from an FI. 
C)  and unexpected increase in customers that wish to undertake business with the FI. 
D)  but expected increase in customers that wish to undertake business with the FI.

Question 11

A disadvantage of using liability management to manage an 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)  loss of flexibility as a result of dependence upon purchased liabilities. 
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)  loss of flexibility as a result of dependence upon purchased liabilities.

Question 12

Trend liquidity needs are liquidity needs that relate to the:

Accepted Answer

A)  trends occurring in the community where, for example, loan growth exceeds deposits growth. 
B)  trends occurring in the community where, for example, deposit growth exceeds loan growth. 
C)  demand for liquidity that fluctuates with seasonal factors. 
D)  demand for liquidity that fluctuates with seasonal factors within a community. 
A)  trends occurring in the community where, for example, loan growth exceeds deposits growth. 
B)  trends occurring in the community where, for example, deposit growth exceeds loan growth. 
C)  demand for liquidity that fluctuates with seasonal factors. 
D)  demand for liquidity that fluctuates with seasonal factors within a community.

Question 13

The aim of open market transactions is to influence the level of liquidity in the market.

Accepted Answer

A) True 
 B)False

Question 14

Which type of financial intermediary is more highly exposed to liquidity risk?

Accepted Answer

A)  property-casualty insurance companies 
B)  life insurance companies 
C)  mutual funds 
D)  depository institutions 
A)  property-casualty insurance companies 
B)  life insurance companies 
C)  mutual funds 
D)  depository institutions

Question 15

In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts knows that normally only a small proportion of these deposits will be withdrawn on any given day.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is true in the context of the liquidity index?

Accepted Answer

A)  The greater the difference between immediate fire-sale asset prices and fair market value prices, the more liquid is the FI's portfolio of assets. 
B)  The greater the difference between immediate fire-sale asset prices and fair market value prices, the less liquid is the FI's portfolio of assets. 
C)  The smaller the difference between immediate fire-sale asset prices and fair market value prices, the less liquid is the FI's portfolio of assets. 
D)  None of the listed options are correct. 
A)  The greater the difference between immediate fire-sale asset prices and fair market value prices, the more liquid is the FI's portfolio of assets. 
B)  The greater the difference between immediate fire-sale asset prices and fair market value prices, the less liquid is the FI's portfolio of assets. 
C)  The smaller the difference between immediate fire-sale asset prices and fair market value prices, the less liquid is the FI's portfolio of assets. 
D)  None of the listed options are correct.

Question 17

The liquidity index will always lie between -1 and +1.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is true?

Accepted Answer

A)  A net liquidity statement focuses on the sources of liquidity and thus provides a measure of an FI's available liquidity. 
B)  A net liquidity statement list focuses on the uses of liquidity and thus provides a measure of an FI's liquidity needs. 
C)  A net liquidity statement lists sources and uses of liquidity and thus provides a measure of an FI's net liquidity position. 
D)  None of the given answers. 
A)  A net liquidity statement focuses on the sources of liquidity and thus provides a measure of an FI's available liquidity. 
B)  A net liquidity statement list focuses on the uses of liquidity and thus provides a measure of an FI's liquidity needs. 
C)  A net liquidity statement lists sources and uses of liquidity and thus provides a measure of an FI's net liquidity position. 
D)  None of the given answers.

Question 19

Which of the following is false?

Accepted Answer

A)  Appropriate liquidity planning can lower the cost of funds of an FI and thus increase its profitability. 
B)  Appropriate liquidity planning can maximise the amount of excess cash reserves. 
C)  Appropriate liquidity planning can limit an FI's liquidity risk. 
D)  None of the listed options are correct. 
A)  Appropriate liquidity planning can lower the cost of funds of an FI and thus increase its profitability. 
B)  Appropriate liquidity planning can maximise the amount of excess cash reserves. 
C)  Appropriate liquidity planning can limit an FI's liquidity risk. 
D)  None of the listed options are correct.

Question 20

Assume that an FI's average loan value is $500 and the average value of deposits is $450. The FI has liquid assets of $50. What is the FI's financing gap?

Accepted Answer

A)  $500 - $450 - $50 = $0 
B)  $450 - $500 = -$50 
C)  $500 - $450 = $50 
D)  $500 - $450 + $50 = $100 
A)  $500 - $450 - $50 = $0 
B)  $450 - $500 = -$50 
C)  $500 - $450 = $50 
D)  $500 - $450 + $50 = $100

Liquidity risk can only arise on the asset-side of an FI's balance sheet as this means that the FI does not hold enough liquid assets such as cash or liquid securities.

Which of the following statements is false?

Which of the following statements is true?

Assume the value of an FI's average loans is $300 and the value of its average deposits is $400. The FI has liquid assets of $100. What is the FI's financing requirement?

Which of the following statements is true?

Consider a mutual fund with 100 shareholders who each invested $10 for a total of $1000. If the assets of the mutual fund are worth $900, what is the net asset value for each one of the mutual fund shares?

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.

What are typical reasons for abnormal deposit drains?

Which of the following statements is true?

A bank run refers to a sudden:

A disadvantage of using liability management to manage an FI's liquidity risk is:

Trend liquidity needs are liquidity needs that relate to the:

The aim of open market transactions is to influence the level of liquidity in the market.

Which type of financial intermediary is more highly exposed to liquidity risk?

In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts knows that normally only a small proportion of these deposits will be withdrawn on any given day.

Which of the following statements is true in the context of the liquidity index?

The liquidity index will always lie between -1 and +1.

Which of the following statements is true?

Which of the following is false?

Assume that an FI's average loan value is $500 and the average value of deposits is $450. The FI has liquid assets of $50. What is the FI's financing gap?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 14: Liquidity Risk

Liquidity risk can only arise on the asset-side of an FI's balance sheet as this means that the FI does not hold enough liquid assets such as cash or liquid securities.

Which of the following statements is false?

Which of the following statements is true?

Assume the value of an FI's average loans is $300 and the value of its average deposits is $400. The FI has liquid assets of $100. What is the FI's financing requirement?

Which of the following statements is true?

Consider a mutual fund with 100 shareholders who each invested $10 for a total of $1000. If the assets of the mutual fund are worth $900, what is the net asset value for each one of the mutual fund shares?

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.

What are typical reasons for abnormal deposit drains?

Which of the following statements is true?

A bank run refers to a sudden:

A disadvantage of using liability management to manage an FI's liquidity risk is:

Trend liquidity needs are liquidity needs that relate to the:

The aim of open market transactions is to influence the level of liquidity in the market.

Which type of financial intermediary is more highly exposed to liquidity risk?

In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts knows that normally only a small proportion of these deposits will be withdrawn on any given day.

Which of the following statements is true in the context of the liquidity index?

The liquidity index will always lie between -1 and +1.

Which of the following statements is true?

Which of the following is false?

Assume that an FI's average loan value is $500 and the average value of deposits is $450. The FI has liquid assets of $50. What is the FI's financing gap?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters