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28 Cards in this Set
- Front
- Back
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If FNBNA is expecting a $15 million net deposit drain and the securities liquidity index is 0.98, how many securities would have to be liquidated if the bank used only its securities to fund the expecteddeposit drain? A. $15,000,000 B. $16,444,331 C. $15,600,000 D. $15,306,122 E. $16,772,345 |
D. $15,306,122 15 million/0.98 = $15,306,122 |
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If FNBNA is expecting a $20 million net deposit drain and the bank wishes to fund the drain by borrowing more money, how much will pre-tax net income change if the borrowing cost is the sameas on its existing borrowed funds? A. $600,000 B. -$312,000 C. -$2,000,000 D. -$600,000 E. $312,000 |
D. -$600,000 20 million x (4% - 7%) = -$600,000 |
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Which one of the following situations creates the most liquidity risk? A. Long-term assets funded by long-term liabilities B. Short-term assets funded by short-term liabilities C. Long-term assets funded by short-term liabilities D. Short-term assets funded by long-term liabilities E. Long-term liabilities funded by short-term assets |
C. Long-term assets funded by short-term liabilities |
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Which of the following results in a net liquidity drain? A. Demand deposits increase $100; loans increase $50 B. Demand deposits decrease $100; loan repayments are $150 C. Repurchase agreements increase $100; demand deposits decrease $50 D. Reverse repurchase agreements increase $50; demand deposits decrease $50 E. None of the above |
D. Reverse repurchase agreements increase $50; demand deposits decrease $50 |
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A bank meets a deposit withdrawal with one of the following alternatives. Which one of the following is an example of using stored liquidity to meet a deposit withdrawal? A. Increase in Euro dollar deposits B. Contacting an investment banker to find new corporate deposits C. Increasing Fed funds borrowed D. Issuance of a negotiable CD E. Selling the bank's holdings of T-bills |
E. Selling the bank's holdings of T-bills |
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What are Second National Bank's total uses of liquidity? A. $6,520 B. $13,500 C. $14,200 D. $12,280 E. $5,760
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A. $6,520 Funds borrowed + Fed borrowing = 6500 + 20 = $6,520 |
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If a bank relies solely on purchased liquidity, the bank will likely A. maintain large amounts of liquid assets. B. fund its loan commitments with asset sales. C. be required to borrow money at short notice. D. be required to raise equity capital quickly. E. be forced to liquidate liabilities at fire sale prices. |
C. be required to borrow money at short notice. |
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Which one of the following is a source of liquidity risk for a bank? A. Predicted increase in net deposit drain before Christmas B. Maturation of notes payable C. Corporation calls in a bond the bank is holding D. A natural disaster in the bank's community E. None of the above |
D. A natural disaster in the bank's community |
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Bank A has a loan to deposit ratio of 110%, core deposits equal 55% of total assets, and borrowedfunds are 25% of assets. Bank B has a loan to deposit ratio of 80%. Core deposits are 65% of assetsand borrowed funds are 5% of assets. Which bank has more liquidity risk? Ceteris paribus, whichbank will probably be more profitable when interest rates are low? A. Bank A; Bank A B. Bank A; Bank B C. Bank B; Bank A D. Bank B; Bank B E. You can't tell |
A. Bank A; Bank A |
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Core deposits include all but which of the following? A. Retail demand deposits B. NOW accounts C. MMDAs D. Savings accounts E. Negotiable CDs |
E. Negotiable CDs |
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The BIS recommends that depository institutions do which of the following to realistically measure liquidity risk? I. Construct a maturity ladder of funding requirements over both the short and long run. II. Conduct scenario analyses of the bank's implied liquidity position under different bank andeconomic conditions. III. Always keep the loan to deposit ratio less than one. A. I only B. II only C. I and II only D. II and III only E. I, II, and III |
C. I and II only |
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A financial intermediary has two assets in its investment portfolio. It has 35% of its security portfolioinvested in one-month Treasury bills and 65% in real estate loans. If it liquidated the bills today, thebank would receive $98 per hundred of face value. If the real estate loans were sold today, they wouldbe worth $85 per 100 of face value. In one month, the real estate loans could be liquidated at $94 per100 of face value. What is the intermediary's one-month liquidity index? A. 0.93 B. 0.92 C. 0.91 D. 0.90 E. 0.89 |
A. 0.93 [(0.35 x 0.98) + (0.65 x 0.85)]/[(0.35 x 1.00) + (0.65 x 0.94)] = 0.93 |
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When calculating the liquidity index, the larger the discount from fair value, the ______________ the liquidity index and the _________________ the liquidity risk the FI faces. A. larger; greater B. smaller; greater C. larger; lower D. smaller; lower |
B. smaller; greater |
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An increasingly positive financing gap can indicate ________________ liquidity risk because it may indicate _______________ deposits and/or rising loan commitments. A. increasing; increasing B. decreasing; decreasing C. increasing; decreasing D. decreasing; increasing |
C. increasing; decreasing |
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Insurance industry guarantee funds do not eliminate runs on insurers because I. the funds are not backed by the federal government. II. the funds lack permanent reserves to back policies. III. the funds have low maximum annual contribution amounts that limit insurer's liability. A. I only B. II only C. III only D. I and III only E. I, II, and III |
E. I, II, and III |
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A married couple each has an IRA and deposits at a bank. The couple also has one child. If they hadthe money, what is the total amount of their accounts that could be insured at one bank? A. $250,000 B. $750,000 C. $1,250,000 D. $1,500,000 E. $2,000,000 |
D. $1,500,000 750,000 for a couple (two separate accounts and one joint account), $250,000 child's account held intrust by parents, and $250,000 for each IRA for a total of $1,500,000. |
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Which of the following can create liquidity risk for a life insurer? I. Unexpectedly high number of policy surrenders II. Unexpectedly low number of new policies sold III. Unexpectedly high insurance claims filed by policyholders A. I only B. II only C. I and II only D. II and III only E. I, II, and III |
E. I, II, and III |
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Runs on insurance firms are more likely to occur than runs on banks even in states with guaranty funds for insurers because these funds generally A. lack a permanent reserve fund. B. do not repay insurance policyholders immediately. C. lack federal government backing. D. all of the above |
D. all of the above |
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The two main reasons why runs on U.S. banks no longer occur are A. reserve requirements and higher bank liquidity ratios. B. a required positive financing gap and bank use of purchased liquidity. C. the FDIC and the discount window. D. insurance funds operated by individual states and tighter bank regulations. E. none of the above |
C. the FDIC and the discount window |
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In the absence of deposit insurance, a deposit is a _______________ to the bank's assets. A. pro rata claim B. first come/first serve claim C. full pay or no pay claim D. both A and B E. both B and C |
E. both B and C |
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How does reliance on purchased liquidity rather than core deposits affect a bank? I. Increases the risk of a liquidity crisis II. Allows the bank to adjust to deposit drains without affecting bank size III. Increases overall interest sensitivity of the bank's profits to interest rates A. I only B. II only C. I and II only D. II and III only E. I, II, and III |
E. I, II, and III |
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Which of the following statements, if any, is(are) true? I. Mutual funds never have runs. II. Funds invested with insurers are as safe as deposits at a bank. III. Pension funds generally have less liquidity risk than banks. A. All three are true B. Only I is true C. Only II and III are true D. Only III is true E. None are true |
D. Only III is true |
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Discount window borrowing is available to I. banks. II. thrifts. III. investment banks. IV. nonfinancial corporations. A. I and II only B. I and III only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV |
C. I, II, and III only |
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The amount that a policyholder receives when they cash in an insurance policy is called the A. cash value. B. surrender value. C. face value. D. policy value. E. fair market value. |
B. surrender value |
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The greater the _________________ ratio the more liquid is the institution, ceteris paribus. A. borrowed funds to total assets B. core deposits to total assets C. loans to deposits D. unused commitments to lend to total assets E. unused commitments to lend to liquid assets |
B. core deposits to total assets |
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The BIS maturity ladder approach to managing liquidity includes which of the following? I. Assessing expected cash inflows and outflows in different time periods. II. Calculation of daily and cumulative funding requirements. III. Estimating funding requirements under different scenarios. IV. Minimizing the securities holdings to increase the bank's ROE. A. I and II only B. II and III only C. I, II, and IV only D. I, II, and III only E. I, II, III, and IV |
D. I, II, and III only |
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What are Second National Bank's total sources of liquidity? A. $6,520 B. $13,500 C. $14,200 D. $12,280 E. $5,760 |
D. $12,280 Cash assets + Max can borrow + Excess cash = 3700 + 8500 + 80 = $12,280 |
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What is Second National Bank's total net liquidity? A. $6,520 B. $13,500 C. $14,200 D. $12,280 E. $5,760 |
E. $5,760 Sources - Uses = 3700 + 8500 + 80 - (6500 + 20) = $5,760 |
