Question 1

Which of the following elements should be included in an FI's liquidity management strategy?

Accepted Answer

A) Clearly defined managerial responsibilities and controls. 
B) A formal plan to minimise excess liquidity. 
C) An agreement to predominantly focus on stored liquidity management. 
D) Clearly defined managerial responsibilities and controls and a formal plan to minimise excess liquidity only. 
A) Clearly defined managerial responsibilities and controls. 
B) A formal plan to minimise excess liquidity. 
C) An agreement to predominantly focus on stored liquidity management. 
D) Clearly defined managerial responsibilities and controls and a formal plan to minimise excess liquidity only. A

Question 2

An FI offers a $2500 minimum balance investment savings account paying 4 per cent annual interest, and there are no service charges as long as the customer maintains the minimum balance.The customer maintains a balance of $5000, and averages 750 cheques per year.Each cheque has a processing cost to the FI of $0.15.What is the annual gross interest return on this account to the customer?

Accepted Answer

A) $112.50 
B) $100.00 
C) $312.50 
D) $212.50 
A) $112.50 
B) $100.00 
C) $312.50 
D) $212.50 C

Question 3

Scenario analysis refers to the part of a bank's liquidity policy that caters for:

Accepted Answer

A) a range of predictable events, to ensure that the FI can operate under these operating conditions. 
B) worst-case events only, to ensure how worst-case events affect the FI's operating conditions. 
C) the most likely scenario, to ensure that the FI's liquidity policy is still valid. 
D) a range of specific events, to ensure that the FI can operate under a wide spectrum of operating conditions. 
A) a range of predictable events, to ensure that the FI can operate under these operating conditions. 
B) worst-case events only, to ensure how worst-case events affect the FI's operating conditions. 
C) the most likely scenario, to ensure that the FI's liquidity policy is still valid. 
D) a range of specific events, to ensure that the FI can operate under a wide spectrum of operating conditions. D

Question 4

Which of the following are determinants of an FI's optimal liquidity?

Accepted Answer

A) The variability of deposit inflows and outflows. 
B) The yield on liquid assets. 
C) The acquisition costs of highly non-liquid assets. 
D) All of the listed options are correct. 
A) The variability of deposit inflows and outflows. 
B) The yield on liquid assets. 
C) The acquisition costs of highly non-liquid assets. 
D) All of the listed options are correct.

Question 5

Assume the average management cost per account per year is $200 and the average fees earned per account per year is $170.The average annual size of account is $1800.What is the average implicit interest rate (round to two decimals)?

Accepted Answer

A) -1.67 per cent 
B) 1.67 per cent 
C) 4.86 per cent 
D) 15 per cent 
A) -1.67 per cent 
B) 1.67 per cent 
C) 4.86 per cent 
D) 15 per cent

Question 6

Use the following information to answer the question. A current deposit account requires a minimum balance of $500 if annual interest of 5 per cent 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 cheques a month and is not charged for these services.However, it costs the bank $0.02 to process each cheque.
What is the average return earned (both explicit and implicit) by the account holder over the full year?

Accepted Answer

A) 2.98 per cent 
B) 3.48 per cent 
C) 4.28 per cent 
D) 4.79 per cent 
A) 2.98 per cent 
B) 3.48 per cent 
C) 4.28 per cent 
D) 4.79 per cent

Question 7

Regulators seek to provide depositor protection to depositors than other FI creditors because deposits are:

Accepted Answer

A) a critical part of the financial system as they facilitate economic transactions. 
B) the main source of funding for banks. 
C) the primary form of savings for individuals and loss of deposits causes significant hardship for depositors. 
D) All of the listed options are correct. 
A) a critical part of the financial system as they facilitate economic transactions. 
B) the main source of funding for banks. 
C) the primary form of savings for individuals and loss of deposits causes significant hardship for depositors. 
D) All of the listed options are correct.

Question 8

Graphically show the relationship between funding cost and funding or withdrawal risk.Explain your graph.

Accepted Answer

A DI HAS TO TRADE OFF THE BENEFITS OF AT

Question 9

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?

Accepted Answer

A) These assets carry a reserve requirement tax. 
B) These assets offer low returns. 
C) These assets offer higher returns that reflect their risk. 
D) Inflation increases the purchasing power value of these assets. 
A) These assets carry a reserve requirement tax. 
B) These assets offer low returns. 
C) These assets offer higher returns that reflect their risk. 
D) Inflation increases the purchasing power value of these assets.

Question 10

The average implicit interest rate can be calculated as follows: the difference between an FI's average:

Accepted Answer

A) management costs per account per year and the average fees earned per account per year, multiplied by the average annual size of the account. 
B) management costs per account per year and the average fees earned per account per year, divided by the average annual size of the account. 
C) fees earned per account per year and average management costs per account per year, multiplied by the average annual size of the account. 
D) fees earned per account per year and average management costs per account per year, divided by the average annual size of the account. 
A) management costs per account per year and the average fees earned per account per year, multiplied by the average annual size of the account. 
B) management costs per account per year and the average fees earned per account per year, divided by the average annual size of the account. 
C) fees earned per account per year and average management costs per account per year, multiplied by the average annual size of the account. 
D) fees earned per account per year and average management costs per account per year, divided by the average annual size of the account.

Question 11

Basel III liquidity reforms costs are:

Accepted Answer

A) reduced profitability due to more liquid balance sheets. 
B) reduced impact of the liquidity coverage ratio and net stable funding ratio on credit unions and building societies. 
C) competitiveness of Australian banks will be negatively impacted if other countries do not take up the reforms. 
D) All of the listed options are correct. 
A) reduced profitability due to more liquid balance sheets. 
B) reduced impact of the liquidity coverage ratio and net stable funding ratio on credit unions and building societies. 
C) competitiveness of Australian banks will be negatively impacted if other countries do not take up the reforms. 
D) All of the listed options are correct.

Question 12

Which of the following statements relating to required stable funding is true?

Accepted Answer

A) The required stable funding (RSF) is found by subtracting the value of assets held and funded by the FI, multiplied by a specific RSF factor assigned to specific asset types. 
B) The RSF is found by adding the value of assets held and funded by the FI, multiplied by a specific RSF factor assigned to specific asset types. 
C) Assets that are more liquid receive a higher RSF factor. 
D) The RSF amount is determined by the liquidity characteristics of the FI's various on-balance sheet contingent exposures. 
A) The required stable funding (RSF) is found by subtracting the value of assets held and funded by the FI, multiplied by a specific RSF factor assigned to specific asset types. 
B) The RSF is found by adding the value of assets held and funded by the FI, multiplied by a specific RSF factor assigned to specific asset types. 
C) Assets that are more liquid receive a higher RSF factor. 
D) The RSF amount is determined by the liquidity characteristics of the FI's various on-balance sheet contingent exposures.

Question 13

Reserve requirement tax is defined as:

Accepted Answer

A) The cost of holding reserves when the central bank pays no-or below market-interest on these balances. 
B) The benefits of holding reserves when the central bank pays above market interest on these balances. 
C) The tax paid on liquidating near-cash assets. 
D) The tax benefit received from liquidating near-cash assets. 
A) The cost of holding reserves when the central bank pays no-or below market-interest on these balances. 
B) The benefits of holding reserves when the central bank pays above market interest on these balances. 
C) The tax paid on liquidating near-cash assets. 
D) The tax benefit received from liquidating near-cash assets.

Question 14

All of the following are associated with contagious runs except:

Accepted Answer

A) liability holders not distinguishing between good and bad FIs. 
B) liability holders seeking to quickly turn their liabilities into cash or safe securities. 
C) a contractionary effect on the supply of credit and negative social welfare effects. 
D) an expansionary effect on the money supply. 
A) liability holders not distinguishing between good and bad FIs. 
B) liability holders seeking to quickly turn their liabilities into cash or safe securities. 
C) a contractionary effect on the supply of credit and negative social welfare effects. 
D) an expansionary effect on the money supply.

Question 15

The challenge of liquidity management is to maintain enough liquidity to avoid a crisis but to sacrifice no more earnings than absolutely necessary.

Accepted Answer

A) True 
 B)False

Question 16

The gross interest return is calculated as explicit interest less implicit interest.

Accepted Answer

A) True 
 B)False

Question 17

What is the benefit of a regulatory guarantee or deposit insurance program for liability holders of FIs?

Accepted Answer

A) It decreases the likelihood contagious runs. 
B) It increases concerns about the asset quality of FI. 
C) It increases concerns about solvency of an FI. 
D) It provides preference to those who are first in line to withdraw funds over those last in line. 
A) It decreases the likelihood contagious runs. 
B) It increases concerns about the asset quality of FI. 
C) It increases concerns about solvency of an FI. 
D) It provides preference to those who are first in line to withdraw funds over those last in line.

Question 18

Which of the following are the two main sources of exchange settlement liquidity for Australian FIs provided by RBA repos?

Accepted Answer

A) ESAs and intra-day repurchase agreement facilities. 
B) Inter-day repurchase agreement facilities and overnight repurchase agreement facilities. 
C) ESAs and inter-day repurchase agreement facilities. 
D) Intra-day repurchase agreement facilities and overnight repurchase agreement facilities. 
A) ESAs and intra-day repurchase agreement facilities. 
B) Inter-day repurchase agreement facilities and overnight repurchase agreement facilities. 
C) ESAs and inter-day repurchase agreement facilities. 
D) Intra-day repurchase agreement facilities and overnight repurchase agreement facilities.

Question 19

Which of the following procedures does APRA require to be adopted by FIs as part of their liquidity management strategies?

Accepted Answer

A) Liquidity management policy approved by the board. 
B) Procedures for assessing and measuring liquidity. 
C) A formal contingency plan for dealing with a liquidity crisis. 
D) All of the listed options are correct. 
A) Liquidity management policy approved by the board. 
B) Procedures for assessing and measuring liquidity. 
C) A formal contingency plan for dealing with a liquidity crisis. 
D) All of the listed options are correct.

Question 20

Managing liabilities as a means of managing liquidity risk involves the trade-off between lower funding cost and higher risk of withdrawals.

Accepted Answer

A) True 
 B)False

Which of the following elements should be included in an FI's liquidity management strategy?

Scenario analysis refers to the part of a bank's liquidity policy that caters for:

Which of the following are determinants of an FI's optimal liquidity?

Assume the average management cost per account per year is $200 and the average fees earned per account per year is $170.The average annual size of account is $1800.What is the average implicit interest rate (round to two decimals)?

Regulators seek to provide depositor protection to depositors than other FI creditors because deposits are:

Graphically show the relationship between funding cost and funding or withdrawal risk.Explain your graph.

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?

The average implicit interest rate can be calculated as follows: the difference between an FI's average:

Basel III liquidity reforms costs are:

Which of the following statements relating to required stable funding is true?

Reserve requirement tax is defined as:

All of the following are associated with contagious runs except:

The challenge of liquidity management is to maintain enough liquidity to avoid a crisis but to sacrifice no more earnings than absolutely necessary.

The gross interest return is calculated as explicit interest less implicit interest.

What is the benefit of a regulatory guarantee or deposit insurance program for liability holders of FIs?

Which of the following are the two main sources of exchange settlement liquidity for Australian FIs provided by RBA repos?

Which of the following procedures does APRA require to be adopted by FIs as part of their liquidity management strategies?

Managing liabilities as a means of managing liquidity risk involves the trade-off between lower funding cost and higher risk of withdrawals.

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

Liquidity Risk

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 15: Liability and Liquidity Management

Which of the following elements should be included in an FI's liquidity management strategy?

Scenario analysis refers to the part of a bank's liquidity policy that caters for:

Which of the following are determinants of an FI's optimal liquidity?

Assume the average management cost per account per year is $200 and the average fees earned per account per year is $170.The average annual size of account is $1800.What is the average implicit interest rate (round to two decimals)?

Regulators seek to provide depositor protection to depositors than other FI creditors because deposits are:

Graphically show the relationship between funding cost and funding or withdrawal risk.Explain your graph.

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?

The average implicit interest rate can be calculated as follows: the difference between an FI's average:

Basel III liquidity reforms costs are:

Which of the following statements relating to required stable funding is true?

Reserve requirement tax is defined as:

All of the following are associated with contagious runs except:

The challenge of liquidity management is to maintain enough liquidity to avoid a crisis but to sacrifice no more earnings than absolutely necessary.

The gross interest return is calculated as explicit interest less implicit interest.

What is the benefit of a regulatory guarantee or deposit insurance program for liability holders of FIs?

Which of the following are the two main sources of exchange settlement liquidity for Australian FIs provided by RBA repos?

Which of the following procedures does APRA require to be adopted by FIs as part of their liquidity management strategies?

Managing liabilities as a means of managing liquidity risk involves the trade-off between lower funding cost and higher risk of withdrawals.

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

Liquidity Risk

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters