Exam 14: Liquidity Risk

Consider the following hypothetical data: Sources of liquidity Total cash-type assets $3000 Maximum borrowed funds limit $22 000 Excess cash in exchange settlement account (ESA) $1000 Uses of liquidity Funds borrowed $12 500 ESA funds $500 What is the FI's net liquidity position? A)($12 500 + $500) - ($3000 + $22 000 + $1000) = -$13 000 B)($3000 + $22 000 + $1000) - ($12 500 + $500) = $13 000 C)($12 500 - $500) = $13 000 D)($3000 + $22 000 + $1000) = $26 000

Consider the following situation: an FI holds 40 per cent of its assets in liquid securities with a fair market value of $100 and the remaining 60 per cent of its assets in housing loans with a fair market value of $500.Further assume that in case of immediate liquidation, the FI would receive $90 for its liquid securities and $450 for its housing loans.What is the FI's liquidity index (round to two decimals)?

An FI's financing gap is the difference between an FI's:

Which of the following equations correctly defines the liquidity index? A) B) C) D)None of the listed options are correct.

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.

A bank run refers to a sudden:

Australia has recently developed a market for deposit insurance guarantee that protects deposit accounts.

Fire-sale price refers to the price received for:

Use the following balance sheet (values in thousands of dollars) to answer the question. Assets Liabilities and equity Cash required reserves 21 Demand deposits 550 Short-term securities 369 Interbank borrowed funds 151 Loans 400 Equity 89 Total 790 Total 790 If the bank experiences a $50 000 sudden liquidity drain caused by withdrawal of their demand deposits, what will be the impact on the balance sheet if purchased liquidity management techniques are used?

Liquidation of a mutual fund causes assets to be liquidated and funds received to the dispersed to shareholders on a first come, first served basis.

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

Use the following balance sheet (values in thousands of dollars) to answer the question. Assets Liabilities and equity Cash required reserves 21 Demand deposits 550 Short-term securities 369 Interbank borrowed funds 151 Loans 400 Equity 89 Total 790 Total 790 If the bank experiences a $50 000 sudden liquidity drain caused by a loan commitment draw down, what will be the impact on the balance sheet if stored liquidity management techniques are used?

Which of the following is a way in which an FI can raise liquidity?

Which of the following statements is true?

Which of the following statements is true?

What are the two main liquidity facilities available to Australian FIs to prevent financial disturbances occurring?

Discuss the advantages and disadvantages of stored liquidity management and purchased liquidity management.In your opinion, which is the better approach for a DI to adopt?

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

APRA requires every FI to hold sufficient liquid assets to meet a name crisis situation.

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