Question 1

Which of the following is not a reason for banks to hold liquid assets?

Accepted Answer

A) To meet customers' needs for currency 
B) To meet capital requirements 
C) To meet required reserves 
D) To compensate for correspondent bank services 
E) To assist in the check clearing process

Question 2

The Hollingsworth National Bank maintains an average clearing balance of $7,000,000 with the Federal Reserve.The Federal Funds rate is currently 5.25 percent.What is the credit the bank will earn over the maintenance period that can be used to offset any fees charged by the Federal Reserve?

Accepted Answer

A) $367,500 
B) $1,021 
C) $14,292 
D) $30,625 
E) None of the options is correct

Question 3

Asset liquidity management (asset conversion)involves storing liquidity in assets,such as land and buildings.

Accepted Answer

A) True 
 B)False

Question 4

A bank is required to maintain an average daily balance at the Fed of $600 million.In the first 2 days of the maintenance period,it maintains a balance of $450 million,the next three days it maintains a balance of $700 million,the next two days it maintains a balance of $650 million,the next three days it maintains a balance of $450 million,and the next three days it maintains a balance of $650 million.What does its balance at the Fed has to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit?

Accepted Answer

A) $600 million 
B) $400 million 
C) $500 million 
D) $800 million 
E) None of the options is correct

Question 5

The Harmony Bank of the South has just increased its Federal Funds Purchases.What source of liquidity does this represent to the bank?

Accepted Answer

A) Incoming customer deposit 
B) Revenues from the sale of nondeposit services 
C) Customer loan repayment 
D) Sale of an asset 
E) Borrowings from the money market

Question 6

The daily average amount of deposits and other reservable liabilities are computed using information gathered over a two-week period extending from a Tuesday to a Monday two weeks later.This interval is known as ___________.

Accepted Answer

The answer of The daily average amount of deposits and...

Question 7

A bank is required to maintain an average daily balance at the Fed of $700 million.On the first day of the maintenance period it maintains a balance of $750 million,the next two days it maintains a balance of $725 million,the next three days it maintains a balance of $625 million,the next three days it maintains a balance of $775 million,the next two days it maintains a balance of $700 million,and the next two days it maintains a balance of $675 million.What does its balance at the Fed has to be on the last day of the maintenance period in order to have a zero cumulative reserve deficit?

Accepted Answer

A) $700 million 
B) $650 million 
C) $750 million 
D) $325 million 
E) None of the options is correct

Question 8

Robberies of cash from banks have declined in recent years.

Accepted Answer

A) True 
 B)False

Question 9

According to the textbook,banks making heavy use of borrowed sources of liquidity must wrestle with the problem of interest cost uncertainty.

Accepted Answer

A) True 
 B)False

Question 10

_________________________ are the deposits and other borrowings of a bank which are very interest sensitive or the ones bank is sure will be withdrawn during the current period.

Accepted Answer

The answer of _________________________ are the deposits and other borrowings...

Question 11

Liquid assets generally have a stable price but are not necessarily reversible.

Accepted Answer

A) True 
 B)False

Question 12

The Hora National Bank has just received notice that a large depositor with the bank wants to close its account immediately.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 13

_________________________ is a 14 day period stretching from a Thursday to a Wednesday.This is the period in which a bank has to keep its average daily level of required reserves for a particular computation period with the Federal Reserve bank in the region.

Accepted Answer

The answer of _________________________ is a 14 day period stretching...

Question 14

A(n)_________________________ is a service developed by banks where a bank shifts money overnight out of accounts with reserve requirements into savings accounts and other similar accounts with no reserve requirements

Accepted Answer

The answer of A(n)_________________________ is a service developed by banks...

Question 15

The Shirley State Bank has $90 million in transaction deposits subject to legal reserves.The bank must hold 3 percent legal reserves up to $43.9 million of transaction deposits and 10 percent legal reserves on any amount above this.What is the bank's total legal reserve requirement?

Accepted Answer

A) $2.700 million 
B) $1.449 million 
C) $5.927 million 
D) $4.170 million 
E) None of the options is correct

Question 16

One of the problems with liquidity management for a bank is that rarely does the demand for funds equals the supply of funds at a given time.

Accepted Answer

A) True 
 B)False

Question 17

A bank or financial service institution can meet reserve requirements by selling Treasury securities in its portfolio.

Accepted Answer

A) True 
 B)False

Question 18

A manager that examines the bank's stock price behavior and risk premium on the CDs to measure liquidity position is using:

Accepted Answer

A) the sources and uses of funds approach. 
B) the structured funds approach. 
C) the liquidity indicator approach. 
D) signals from the marketplace. 
E) None of the options is correct.

Question 19

According to the textbook,the management of a bank expects to lose its "hot money" liabilities during a period.

Accepted Answer

A) True 
 B)False

Question 20

_________________________ is a strategy in which a financial institution borrows in the money market to meet its liquidity needs.

Accepted Answer

The answer of _________________________ is a strategy in which a...

Exam 11: Liquidity and Reserves Management: Strategies and Policies

Which of the following is not a reason for banks to hold liquid assets?

The Hollingsworth National Bank maintains an average clearing balance of $7,000,000 with the Federal Reserve.The Federal Funds rate is currently 5.25 percent.What is the credit the bank will earn over the maintenance period that can be used to offset any fees charged by the Federal Reserve?

Asset liquidity management (asset conversion)involves storing liquidity in assets,such as land and buildings.

The Harmony Bank of the South has just increased its Federal Funds Purchases.What source of liquidity does this represent to the bank?

The daily average amount of deposits and other reservable liabilities are computed using information gathered over a two-week period extending from a Tuesday to a Monday two weeks later.This interval is known as ___________.

Robberies of cash from banks have declined in recent years.

According to the textbook,banks making heavy use of borrowed sources of liquidity must wrestle with the problem of interest cost uncertainty.

_________________________ are the deposits and other borrowings of a bank which are very interest sensitive or the ones bank is sure will be withdrawn during the current period.

Liquid assets generally have a stable price but are not necessarily reversible.

The Hora National Bank has just received notice that a large depositor with the bank wants to close its account immediately.Which type of factor affecting legal reserves is this for the bank?

_________________________ is a 14 day period stretching from a Thursday to a Wednesday.This is the period in which a bank has to keep its average daily level of required reserves for a particular computation period with the Federal Reserve bank in the region.

A(n)_________________________ is a service developed by banks where a bank shifts money overnight out of accounts with reserve requirements into savings accounts and other similar accounts with no reserve requirements

The Shirley State Bank has $90 million in transaction deposits subject to legal reserves.The bank must hold 3 percent legal reserves up to $43.9 million of transaction deposits and 10 percent legal reserves on any amount above this.What is the bank's total legal reserve requirement?

One of the problems with liquidity management for a bank is that rarely does the demand for funds equals the supply of funds at a given time.

A bank or financial service institution can meet reserve requirements by selling Treasury securities in its portfolio.

A manager that examines the bank's stock price behavior and risk premium on the CDs to measure liquidity position is using:

According to the textbook,the management of a bank expects to lose its "hot money" liabilities during a period.

_________________________ is a strategy in which a financial institution borrows in the money market to meet its liquidity needs.