Question 1

What are the possible ways that a bank can meet an expected net deposit drain of +4 per cent using purchased liquidity management techniques?

Accepted Answer

A) Utilise the interbank funds market and repurchase agreements. 
B) Utilise repurchase agreements. 
C) Liquidate all cash holdings. 
D) All of the listed options are correct. 
A) Utilise the interbank funds market and repurchase agreements. 
B) Utilise repurchase agreements. 
C) Liquidate all cash holdings. 
D) All of the listed options are correct.

Question 2

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 3

Which of the following statements is true?

Accepted Answer

A) In Australia, depositors received preference over other liability holders in the event of a liquidation of an FI. 
B) In Australia, depositors receive preference over other liability holders in the event of a liquidation of an FI being replaced by a financial claims scheme to protect deposit accounts. 
C) In Australia, only customers of the major banks are covered by deposit insurance. 
D) Australia has had a well-developed deposit insurance system for decades that has protected depositors without a bank failure for over a century. 
A) In Australia, depositors received preference over other liability holders in the event of a liquidation of an FI. 
B) In Australia, depositors receive preference over other liability holders in the event of a liquidation of an FI being replaced by a financial claims scheme to protect deposit accounts. 
C) In Australia, only customers of the major banks are covered by deposit insurance. 
D) Australia has had a well-developed deposit insurance system for decades that has protected depositors without a bank failure for over a century.

Question 4

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 5

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.

Question 6

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 7

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

Question 8

Cyclical liquidity needs are those which vary with the:

Accepted Answer

A) seasonal cycle. 
B) business cycle. 
C) weather cycle, for example influencing droughts. 
D) FI's maturity cycle. 
A) seasonal cycle. 
B) business cycle. 
C) weather cycle, for example influencing droughts. 
D) FI's maturity cycle.

Question 9

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 10

Bank panic refers to a contagious run on the deposits of:

Accepted Answer

A) banking institutions in particular suburbs. 
B) the big four banks. 
C) all branches of a particular institution. 
D) the banking industry as a whole. 
A) banking institutions in particular suburbs. 
B) the big four banks. 
C) all branches of a particular institution. 
D) the banking industry as a whole.

Question 11

Which of the following is not a potential cause of liquidity risk for a DI?

Accepted Answer

A) A decrease in the DI's stock price caused by market factors. 
B) An increase in requests to fund large amounts of loan commitments. 
C) A decrease in the availability of short-term borrowed funds. 
D) An increase in requests by depositors to withdrawal large amounts of deposits. 
A) A decrease in the DI's stock price caused by market factors. 
B) An increase in requests to fund large amounts of loan commitments. 
C) A decrease in the availability of short-term borrowed funds. 
D) An increase in requests by depositors to withdrawal large amounts of deposits.

Question 12

Which of the following statements is true?

Accepted Answer

A) Under the BIS scenario analysis, an FI needs to assess its liquidity position in comparison to other FIs in the market based on different scenarios. 
B) Under the BIS scenario analysis, an FI needs to estimate the size of cash flows for each type of asset and liability based on past experience. 
C) Under the BIS scenario analysis, an FI needs to assign a timing of cash flows for each type of asset and liability by assessing the probability of behaviour of those cash flows under the scenario being examined. 
D) None of the listed options are correct. 
A) Under the BIS scenario analysis, an FI needs to assess its liquidity position in comparison to other FIs in the market based on different scenarios. 
B) Under the BIS scenario analysis, an FI needs to estimate the size of cash flows for each type of asset and liability based on past experience. 
C) Under the BIS scenario analysis, an FI needs to assign a timing of cash flows for each type of asset and liability by assessing the probability of behaviour of those cash flows under the scenario being examined. 
D) None of the listed options are correct.

Question 13

Which of the following statements is true?

Accepted Answer

A) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay shareholders immediately. 
B) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to finance new loan demand. 
C) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay fully and promptly all maturing liabilities. 
D) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay all short-term liabilities immediately. 
A) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay shareholders immediately. 
B) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to finance new loan demand. 
C) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay fully and promptly all maturing liabilities. 
D) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay all short-term liabilities immediately.

Question 14

Consider the following situation: an FI holds two assets in equal proportions, these being liquid securities with a fair market value of $200 and housing loans with a fair market value of $800.Further assume that in case of immediate liquidation, the FI would receive $185 for its liquid securities and $700 for its housing loans.What is the FI's liquidity index (round to two decimals)?

Accepted Answer

A) I = (185/200) + (700/800) = 1.80 
B) I = (185/200) * (700/800) = 0.81 
C) I = 0.5 * (185/200) + 0.5 *(700/800) = 0.90 
D) I = [0.5 * (185/200)] * [0.5 *(700/800)] = 0.20 
A) I = (185/200) + (700/800) = 1.80 
B) I = (185/200) * (700/800) = 0.81 
C) I = 0.5 * (185/200) + 0.5 *(700/800) = 0.90 
D) I = [0.5 * (185/200)] * [0.5 *(700/800)] = 0.20

Question 15

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

Question 16

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 17

Which of the following statements is true?

Accepted Answer

A) Open market operations are interventions in the short-term money market by APRA to affect the cash interest rate. 
B) Open market operations are interventions in the short-term money market by the RBA to affect the cash interest rate. 
C) Open market operations are interventions in the long-term capital market by APRA to affect long-term interest rates. 
D) Open market operations are interventions in the long-term capital market by the RBA to affect long-term interest rates. 
A) Open market operations are interventions in the short-term money market by APRA to affect the cash interest rate. 
B) Open market operations are interventions in the short-term money market by the RBA to affect the cash interest rate. 
C) Open market operations are interventions in the long-term capital market by APRA to affect long-term interest rates. 
D) Open market operations are interventions in the long-term capital market by the RBA to affect long-term interest rates.

Question 18

When comparing banks and mutual funds, mutual funds have:

Accepted Answer

A) more liquidity risk than banks because all shareholders share the loss of value on a pro rata basis. 
B) less liquidity risk than banks because all shareholders share the loss of value on a pro rata basis. 
C) more liquidity risk than banks because all shareholders have the ability to withdraw their money on a first-come first-served basis. 
D) the same liquidity risk as banks because both shareholders and depositors share the fall in the loss of value on a pro rata basis. 
A) more liquidity risk than banks because all shareholders share the loss of value on a pro rata basis. 
B) less liquidity risk than banks because all shareholders share the loss of value on a pro rata basis. 
C) more liquidity risk than banks because all shareholders have the ability to withdraw their money on a first-come first-served basis. 
D) the same liquidity risk as banks because both shareholders and depositors share the fall in the loss of value on a pro rata basis.

Question 19

The Reserve Bank of Australia (RBA) took a number of temporary actions during the global financial crisis to provide liquidity and avert financial system disturbance.Which of the following were not actions supplied by the RBA?
A)Extension of collateral eligible for open market operations.
B)Longer term repos offered daily that provided funding for 6-month and 1-year terms.
C)Residential mortgage-backed securities and asset-backed commercial paper.
D)A foreign exchange swap facility to address the global shortage of euro in financial markets.

Accepted Answer

The answer of The Reserve Bank of Australia (RBA) took...

Question 20

Contingent liquidity needs refers to the liquidity needs necessary to:

Accepted Answer

A) fund contingent assets. 
B) fund assets. 
C) meet an unforeseen event. 
D) meet a foreseen event. 
A) fund contingent assets. 
B) fund assets. 
C) meet an unforeseen event. 
D) meet a foreseen event.

What are the possible ways that a bank can meet an expected net deposit drain of +4 per cent using purchased liquidity management techniques?

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?

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

Which of the following statements is true?

Which of the following statements is true?

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?

Cyclical liquidity needs are those which vary with the:

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.

Bank panic refers to a contagious run on the deposits of:

Which of the following is not a potential cause of liquidity risk for a DI?

Which of the following statements is true?

Which of the following statements is true?

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.

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

Which of the following statements is true?

When comparing banks and mutual funds, mutual funds have:

Contingent liquidity needs refers to the liquidity needs necessary to:

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

What are the possible ways that a bank can meet an expected net deposit drain of +4 per cent using purchased liquidity management techniques?

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?

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

Which of the following statements is true?

Which of the following statements is true?

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?

Cyclical liquidity needs are those which vary with the:

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.

Bank panic refers to a contagious run on the deposits of:

Which of the following is not a potential cause of liquidity risk for a DI?

Which of the following statements is true?

Which of the following statements is true?

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.

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

Which of the following statements is true?

When comparing banks and mutual funds, mutual funds have:

Contingent liquidity needs refers to the liquidity needs necessary to:

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