Deck 11: Managing Liquidity

Question 1

In which of the following ways can a bank acquire liquidity?

A) Selling Fed funds
B) Investing in repurchase agreements
C) Increasing the number of loans outstanding
D) Selling Treasury securities
E) Buying back outstanding bank stock

Answer 1

D

Question 2

In determining reserves, the banks and the Federal Reserve currently use:

A) a leading reserve accounting system.
B) a contemporaneous reserve accounting system.
C) a lagged reserve accounting system.
D) an actual reserve accounting system.
E) a holding reserve accounting system.

Answer 2

C

Question 3

Which of the following is a discretionary factor that will increase a bank's daily reserves held at the Federal Reserve?

A) Yesterday's immediate cash letter
B) Federal funds purchased
C) Security purchases
D) Currency received from Federal Reserve
E) Deficit in local clearinghouse

Answer 3

B

Question 4

Which of the following is not considered a monetary policy tool of the Federal Reserve?

A) Changing float requirements
B) Open market operations
C) Changing the discount rate
D) Changing reserve requirements
E) All of the above are considered to be monetary policy tools

Question 5

A bank is currently exactly meeting its reserve requirements of 10%. If the bank has a deposit inflow of $10,000,000, what is the impact on its required reserve position?

A) It now has excess reserves in the amount of $9,000,000.
B) It now has excess reserves in the amount of $10,000,000.
C) It is now deficient $1,000,000 in required reserves.
D) It is now deficient $9,000,000 in required reserves.
E) There would be no impact on the bank's required reserves.

Question 6

Which of the following does not directly influence the amount of required reserves a bank must hold?

A) The required reserve ratio.
B) The dollar amount of cash items in process of collection.
C) The dollar amount of demand deposits outstanding.
D) The dollar amount of money market deposit accounts outstanding.
E) The dollar amount of NOW accounts outstanding.

Question 7

Which of the following is a non-discretionary factor that will increase a bank's daily reserves held at the Federal Reserve?

A) Federal funds sold
B) Receiving a discount window loan
C) Remittances charged
D) Security sales
E) Deposits from the U.S. Treasury

Question 8

Which of the following is not considered a viable long-term source of bank liquidity?

A) Federal funds sold
B) Short-term Treasury securities
C) Cash
D) High quality short-term municipal securities
E) Reverse repurchase agreements

Question 9

When selling securities to meet liquidity needs, a bank should consider all of the following except:

A) brokerage fees.
B) lost interest income.
C) the gains or losses on the securities.
D) the impact on taxes.
E) All of the above should be considered when selling securities to meet liquidity needs.

Question 10

Which of the following indicates the potential for deposits leaving a bank?

A) High business activity and growth
B) Deposits that are inelastic to changes in interest rates
C) An aggressive bank loan officer
D) Large deposits held by a single customer
E) Small unused commercial credit lines outstanding

Question 11

Which of the following is not a measure of liability liquidity?

A) Total loans to total assets
B) Total deposits to total assets
C) Total equity to total assets
D) Loan losses to net loans
E) Core deposits to total assets

Question 12

Which of the following is a non-discretionary factor that will decrease a bank's daily reserves held at the Federal Reserve?

A) Deferred availability items
B) Payments on loans from Federal Reserve
C) Remittances charged
D) Excess from local clearing house
E) Federal funds sold

Question 13

Which of the following is not a reason that banks hold cash assets?

A) To meet customer's 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 14

Which of the following is not considered a highly liquid asset?

A) Federal funds sold
B) 90-day Treasury bills
C) AAA-rated commercial paper
D) A Federal Home Loan Bank Board bond with 6 months until maturity
E) Repurchase agreement

Question 15

The two-week period during which a bank must hold sufficient legal reserves is called the:

A) deposit computation period.
B) deposit maintenance period.
C) vault cash computation period.
D) base computation period.
E) maintenance period.

Question 16

Which of the following is a discretionary factor that will decrease a bank's daily reserves held at the Federal Reserve?

A) Remittances charged
B) Federal funds purchased
C) Yesterday's immediate cash letter
D) Currency received from Federal Reserve
E) Deficit in local clearinghouse

Question 17

Which of the following indicates the potential demand for new loans?

A) Low business growth and activity
B) A relatively large percentage of demand deposits
C) Large, unused commercial credit lines outstanding
D) Large deposits held by a single customer
E) The level of uninsured deposits

Question 18

The check-clearing services of correspondent banks are often used because:

A) the respondent bank is required to purchase a minimum amount of services.
B) it reduces required reserves.
C) the correspondent bank may be marketing their own services in a local community.
D) it often reduces float.
E) it decreases interest income.

Question 19

Which of the following is not an advantage of larger cash balances for a bank?

A) Larger cash balances reduce the need to borrow at the discount window.
B) Larger cash balances reduce the risk of bank runs.
C) Larger cash balances reduce the risk of paying penalties to the Federal Reserve.
D) Larger cash balances increase reserve balances.
E) Larger cash balances reduce a bank's interest expense.

Question 20

Which of the following is not considered a cash asset?

A) Marketable securities
B) Cash items in process of collection
C) Demand deposits at private financial institutions
D) Demand deposits at the Federal Reserve
E) Vault cash

Question 21

Respondent banks buy services from correspondent banks.

Question 22

The section of a contingency plan that assesses the impact of potential adverse events on the bank's balance sheet is known as the _________ section?

A) narrative
B) qualitative
C) quantitative
D) summary
E) descriptive

Question 23

Vault cash generally satisfies a bank's liquidity needs.

Question 24

Which of the following is not a measure of liability liquidity?

A) Total equity to total assets
B) Core deposits to total assets
C) Total deposits to total assets
D) Federal funds sold to total assets
E) Loan losses to deposits.

Question 25

The ease of converting an asset to cash with a minimum of loss is known as:

A) asset liquidity.
B) volatile liquidity.
C) core liquidity.
D) liability liquidity.
E) non-core liquidity.

Question 26

Core deposits tend to be more interest elastic than volatile liabilities.

Question 27

Collateral is required against each of the following liabilities except ________.

A) securities sold under agreement to repurchase
B) borrowings from the Federal Reserve discount window
C) U.S. Treasury securities
D) public deposits owned by the U.S. Treasury
E) Federal Home Loan Bank advances

Question 28

The best measure of bank asset liquidity is the core deposits to total asset ratio.

Question 29

What is a "bankers' bank"?

Question 30

How can pledging requirements make bank assets less liquid?

Question 31

Why do banks prefer a lagged reserve accounting system to a contemporaneous reserve accounting system?

Question 32

Volatile deposits:

A) are the largest source of funds for smaller banks.
B) equal the difference between actual current deposits and the base estimate of core deposits.
C) reduce reserve requirements.
D) are a low cost source of funds.
E) all of the above

Question 33

Discuss the major components of a bank's contingency funding plan.

Question 34

Discuss the advantages and disadvantages of a bank holding less cash.

Question 35

When increasing liabilities to meet liquidity needs, a bank should consider all of the following except:

A) brokerage fees.
B) required reserves.
C) FDIC insurance premiums.
D) lost interest income.
E) All of the above should be considered when increasing liabilities to meet liquidity needs.

Question 36

Which of the following could be used to identify a potential increase in borrowing by customers that might deplete a bank's cash reserves?

A) The amount of insured versus uninsured deposits
B) Large deposits held by a single entity
C) Volume of Fed Funds sold
D) The sensitivity of deposits to changes in the level of interest rates
E) Unused commercial credit lines outstanding

Question 37

More liquid assets tend to earn lower returns, everything else the same.