Question 1

A person responsible for overseeing an institution's legal reserve account is called:

Accepted Answer

A) reserve manager. 
B) money market manager. 
C) money position manager. 
D) legal counselor. 
E) None of the options is correct.

Question 2

The Peace Bank of Ohio has just received a $50 million credit at the local clearing house.Which type of factor affecting legal reserves is this for the bank?

Accepted Answer

A) A controllable factor increasing legal reserves 
B) A noncontrollable factor increasing legal reserves 
C) A controllable factor decreasing legal reserves 
D) A noncontrollable factor decreasing legal reserves 
E) None of the options is correct

Question 3

If total legal reserves held are less than required reserves,a bank has ___________.

Accepted Answer

The answer of If total legal reserves held are less...

Question 4

The base amount of transaction deposits for a depository institution above which the legal reserve requirement changes to ten percent is known as:

Accepted Answer

A) reserve base. 
B) reserve tranche. 
C) base limit. 
D) limit tranche. 
E) cut-off tranche.

Question 5

One of the problems with liquidity management for a bank is that there is a trade-off between liquidity and profitability.

Accepted Answer

A) True 
 B)False

Question 6

_____________ indicators tend to be highly sensitive to the season of the year and stage of the business cycle.

Accepted Answer

A) Stored liquidity 
B) Purchased liquidity 
C) Balanced liquidity 
D) Asset liquidity 
E) Liability liquidity

Question 7

Which of the following is not a source of liquidity for financial institutions?

Accepted Answer

A) Deposits 
B) Money market borrowings 
C) Sale of marketable securities 
D) Dividend payments to stockholders 
E) All the options are correct.

Question 8

If a bank's management uses "the discipline of the financial marketplace" to gauge its liquidity position,one of the indicators of this market test of adequacy of a bank's liquidity position is:

Accepted Answer

A) the bank's return on equity capital. 
B) the volume of bank stock outstanding. 
C) the bank's return on assets. 
D) the size of risk premiums on CDs the bank issues. 
E) None of the options is correct.

Question 9

Due to the inherent risks in relying on borrowed liquidity and costs of storing liquid assets,most financial firms compromise by using:

Accepted Answer

A) asset management. 
B) liability management. 
C) balanced liquidity management. 
D) asset and liability management. 
E) All the options are correct.

Question 10

John Camey,the money manager of the First State Bank,has estimated that the bank has a 20 percent chance of a liquidity deficit of $700 million,a 30 percent chance of a liquidity deficit of $200 million,a 30 percent chance of a liquidity surplus of $400 million and a 20 percent chance of a liquidity surplus of $900 million over the next week.What is the bank's expected liquidity deficit or surplus over the next week?

Accepted Answer

A) $100 million liquidity surplus 
B) $100 million liquidity deficit 
C) $400 million liquidity surplus 
D) $500 million liquidity surplus 
E) $0 liquidity surplus

Question 11

The fed funds rate is generally most volatile on a bank's __________ day.

Accepted Answer

The answer of The fed funds rate is generally most...

Question 12

Which of the following statements is correct?

Accepted Answer

A) Demand for liquidity and sources of liquidity for a bank are generally equal to each other. 
B) Most liquidity problems in the banking system arise from outside a bank. 
C) Liquidity problems for a bank are made easier because most of their liabilities are not subject to immediate repayment. 
D) Liquidity management is easy for a bank because a bank that is very liquid is also very profitable. 
E) All of the options are correct.

Question 13

Which of the following is an option when a liquidity deficit arises and a bank wants to use stored liquidity in its assets to cover the deficit?

Accepted Answer

A) Borrowing in the Federal Funds market 
B) Issuing a jumbo CD 
C) Selling Treasury Bills 
D) Increasing their correspondent deposits with another bank 
E) All the options are correct

Question 14

According to the textbook,if a bank's liquidity deficit is expected to last for only a few hours,the Federal funds market or the central bank's discount window is normally the preferred source of funds.

Accepted Answer

A) True 
 B)False

Question 15

The two most pressing demands for liquidity from a bank come from,first,customers withdrawing their deposits and,second,from:

Accepted Answer

A) credit requests from customers the bank wishes to keep. 
B) checks being cashed at local stores and directly from the bank. 
C) demands for wired funds from correspondent banks. 
D) legal reserve requirements set by the Federal Reserve Board. 
E) None of the options is correct.

Question 16

A financial institution that has ready access to immediately spendable funds at reasonable cost and at precisely the time those funds are needed is considered:

Accepted Answer

A) risk-free. 
B) liquid. 
C) efficient. 
D) profitable. 
E) None of the options is correct.

Question 17

Borrowed liquidity (liability)management is less risky for a financial institution than is asset conversion.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is an example of a use of funds?

Accepted Answer

A) A customer withdraws $1,000 from their account 
B) A borrower repays $1,500 of a loan they have received 
C) A bank issues a $1,000,000 CD 
D) A bank sells $5,000,000 of T-Bills 
E) None of the options is a use of funds

Question 19

Loan commitments ratio measures the volume of promises a lender has made to its customers to provide credit up to pre-specified amount over a given time period.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is an option when a liquidity deficit arises and a bank wants to borrow liquidity to cover the deficit?

Accepted Answer

A) Selling Treasury Bills 
B) Reducing its correspondent deposits with another bank 
C) Selling a municipal bond 
D) Issuing a jumbo CD 
E) All the options are correct

Exam 11: Liquidity and Reserves Management: Strategies and Policies

A person responsible for overseeing an institution's legal reserve account is called:

The Peace Bank of Ohio has just received a $50 million credit at the local clearing house.Which type of factor affecting legal reserves is this for the bank?

If total legal reserves held are less than required reserves,a bank has ___________.

The base amount of transaction deposits for a depository institution above which the legal reserve requirement changes to ten percent is known as:

One of the problems with liquidity management for a bank is that there is a trade-off between liquidity and profitability.

_____________ indicators tend to be highly sensitive to the season of the year and stage of the business cycle.

Which of the following is not a source of liquidity for financial institutions?

If a bank's management uses "the discipline of the financial marketplace" to gauge its liquidity position,one of the indicators of this market test of adequacy of a bank's liquidity position is:

Due to the inherent risks in relying on borrowed liquidity and costs of storing liquid assets,most financial firms compromise by using:

The fed funds rate is generally most volatile on a bank's __________ day.

Which of the following statements is correct?

Which of the following is an option when a liquidity deficit arises and a bank wants to use stored liquidity in its assets to cover the deficit?

According to the textbook,if a bank's liquidity deficit is expected to last for only a few hours,the Federal funds market or the central bank's discount window is normally the preferred source of funds.

The two most pressing demands for liquidity from a bank come from,first,customers withdrawing their deposits and,second,from:

A financial institution that has ready access to immediately spendable funds at reasonable cost and at precisely the time those funds are needed is considered:

Borrowed liquidity (liability)management is less risky for a financial institution than is asset conversion.

Which of the following is an example of a use of funds?

Loan commitments ratio measures the volume of promises a lender has made to its customers to provide credit up to pre-specified amount over a given time period.

Which of the following is an option when a liquidity deficit arises and a bank wants to borrow liquidity to cover the deficit?