商业银行管理彼得S罗斯英文原书第8版英语试题库Chap011.doc

Chapter 11Liquidity and Reserves Management: Strategies and PoliciesFill in the Blank Questions1.A(n) _ is an asset which can be converted into cash easily, which has a relatively stable price and is reversible so that the seller can recover their original investment with little risk of loss. Answer: liquid asset 2.When a financial institution sells assets to manage liquidity it faces _. They lose the future earnings on those assets, they face transaction costs on those sales and the assets most easily sold often have the lowest return. Answer: opportunity costs 3._ is when the financial institution borrows money in the money market to meet their liquidity needs. Answer: Purchased (borrowed) liquidity 4.The _ is the total difference between its sources and uses of funds. Answer: liquidity gap 5._ are the deposits and other borrowings of the bank which are very interest sensitive or where the bank is sure they will be withdrawn during the current period. Answer: Hot money liabilities 6.The _ is the idea that management should make all good loans and count on its ability to borrow funds if it does not have the liquidity to meet its cash needs. Answer: customer relationship doctrine 7._ are the assets the bank must by law hold behind its deposits. In the U.S. only vault cash and deposits held with the Federal Reserves can be used to meet these requirements. Answer: Legal reserves 8.A(n) _ is the account the bank must have at the Federal Reserve to cover any checks drawn against the bank. Answer: clearing balance 9.A(n) _ is a service developed by banks where the bank shifts money out of accounts with reserve requirements and into savings accounts overnight. Answer: sweeps account 10.The _ is a 14 day period stretching from a Thursday to a Wednesday. This is the period in which the bank has to keep their average daily level of required reserves for a particular computation period. Answer: reserve maintenance period 11._ is the availability of cash in the amount needed at a reasonable cost. Answer: Liquidity 12.The oldest approach to meeting liquidity needs which relies on the sale of liquid assets to meet liquidity demands is called _. Answer: asset liquidity management 13.Under a _ strategy some of the expected demands for liquidity are stored in assets, while others are backstopped by arrangements for lines of credit from banks or other suppliers of funds. Answer: balanced liquidity management 14.A(n) _ is the person in the bank responsible for the banks cash position and meeting legal reserve requirements. Answer: money position manager 15.The method used in the U.S. to determine a banks legal reserve requirement in which the period for holding legal reserves follows the period used to calculate the required amount of legal reserves is called _. Answer: lagged reserve accounting 16.The fed funds rate is generally most volatile on bank _ day. Answer: settlement 17.Many depository institutions hold _ balances (extra reserves) to help prevent overdraft penalties. Answer: precautionary 18.Not all _ banks around the world have reserve requirements. Answer: central 19. For several decades, the largest banks around the world have chosen which calls for borrowing immediately spendable funds to cover all anticipated demands for liquidity.Answer: liability management20. The approach to managing liquidity starts with two simple facts, liquidity rises as deposits increase and loans decrease and liquidity falls when deposits fall and loans increase.Answer: sources and uses of funds21. In the approach to managing liquidity deposits and other sources of funds are divided into categories and then liquidity managers must set aside liquid funds according to some desired operating rule.Answer: structure of funds22. Many financial service institutions estimate their liquidity needs based upon experience and industry averages. This approach to managing liquidity is called the approach.Answer: liquidity indicator23. Many analysts believe there is only one sound method for assessing a financial institutions liquidity needs. This method centers on .Answer: discipline of the financial marketplace (signals from the marketplace)24. The for deposits and other reservable liabilities and for vault cash holdings is a two week period extending from Tuesday to a Monday two weeks later.Answer: reserve computation period25. If total legal reserves held are greater than required reserves the bank has .Answer: excess reserves26. If total legal reserves held are less than required reserves the bank has .Answer: a reserve deficit27. The is where a money position manager can cover a large reserve deficit quickly. It is usually one of the cheapest places to borrow but is also frequently volatile.Answer: federal funds market28. One of the ratios used in the liquidity indicator approach to managing a financial institutions liquidity needs is . This ratio is cash and due from depository institutions divided by total assets where a greater ratio indicates a stronger liquidity position.Answer: cash position indicatorTrue/False QuestionsTF29.Liquid assets must have a reasonably stable price so that the market is deep enough to absorb the sale without a significant loss of value. Answer: True TF30.Asset liquidity management (or asset conversion) involves storing liquidity in assets, such as deposits and jumbo CDs.Answer: FalseT F 31.Asset liquidity management (or asset conversion) involves storing liquidity in assets, such as cash and marketable securities.Answer: True TF32.Liquid assets generally have a stable price but are not necessarily reversible. Answer: False TF33.Asset conversion is considered to be a costless approach to liquidity management. Answer: False TF34.One principle of sound bank liquidity management is to be sure to sell first those assets with the least profit potential. Answer: True TF35.Borrowed liquidity (liability) management is less risky for a financial institution than is asset conversion. Answer: False TF36.A financial institutions liquidity gap represents the difference between its sources and uses of liquid funds. Answer: True TF37.A bank expects to lose its hot money liabilities, according to the textbook. Answer: True TF38.According to the customer relationship doctrine a bank should turn down any loan requests for which it does not have enough deposits on hand but should help its borrowing customer obtain funds from some other source (such as by issuing a letter of credit to backstop the customers loan from another lender). Answer: False TF39.A U.S. bank can run up to a 5-percent deficit in its legal reserve requirement without incurring an interest penalty from the Federal Reserve System. Answer: False TF40.Most liquidity problems in banking arise from inside a bank, not from its customers. Answer: False TF41.Holdings of liquid assets at U.S. banks have experienced a gradual decline in recent years. Answer: True TF42.The Federal Reserve has been lowering deposit reserve requirements in recent years. Answer: True TF43.The liquidity indicator, core deposits divided by total assets, is a measure of stored liquidity.Answer: False TF44.A banks money position manager is responsible for insuring that the bank maintains an adequate level of legal reserves. Answer: True TF45.If a bank in the United States runs a legal reserve deficit of more than 2 percent of its required daily average legal reserve position it will be assessed an interest penalty equal to the Federal Reserves discount rate plus 5 percent. Answer: False TF46.If a bank receives more checks deposited to the accounts it holds than checks drawn against its deposit accounts, the banks legal reserves will tend to increase. Answer: True TF47.According to the textbook if a banks liquidity deficit is expected to last for only a few hours, the federal funds market or the central banks discount window is normally the preferred source of funds. Answer: True TF48.Banks making heavy use of borrowed sources of liquidity must wrestle with the problem of interest cost uncertainty, according to the textbook. Answer: True TF49.All central banks impose reserve requirements on the banks they regulate. Answer: False TF50.The sources and uses of funds method of estimating a banks liquidity requirements divides the banks liabilities into three types (hot money, vulnerable funds and stable funds) and estimates the probability of each being withdrawn from the bank. Answer: False TF51.One of the problems with liquidity management for a bank is that rarely does the demand for funds equal the supply of funds at a given time. Answer: True TF52.One of the problems with liquidity management for a bank is that there is a trade-off between bank liquidity and profitability. Answer: True TF53.The liquidity problem for banks is made easier because most of their liabilities are not subject to immediate repayment. Answer: False TF54.The liquidity problem for banks is made easier because depositors and borrowers are not sensitive to changing interest rates. Answer: False TF55.The oldest approach to liquidity management is the asset liquidity management approach. Answer: True TF56.Some central banks around the world impose reserve requirements on bank loans. Answer: True TF57.Some central banks around the world impose reserve requirements on nondeposit liabilities. Answer: True TF58.Interest in bank and financial service liquidity management is a relatively new phenomenon which arose following the 9/11 crisis. Answer: False TF59.Bank robberies have declined in recent years. Answer: False TF60.Discount window loans jumped dramatically the day following 9/11. Answer: True TF61.A bank or financial service institution can meet reserve requirements by selling Treasury securities in its portfolio. Answer: True TF62.All central banks around the world have some specified reserve requirement. Answer: False TF63.Core deposit ratio is used as one of the liquidity indicators for depository institutions and is defined as the ratio of core deposits to total assets. Answer: True TF64.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. Answer: True Multiple Choice Questions65. A financial institution that has ready access to immediately spendable funds at reasonable cost at precisely the time those funds are needed is: A)Risk free B)Liquid C)Efficient D)Profitable E)None of the above Answer: B 66. Which of the following is not a reason that banks to hold liquid assets?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.Answer: B67. The two most pressing demands for liquidity from a bank come from, first, customers withdrawing their deposits and, second, from: A)Credit requests from those 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 above. Answer: A 68. A bank expects in the week about to begin $30 million in incoming deposits, $20 million in deposit withdrawals, $15 million in revenues from the sale of nondeposit services, $25 million in customer loan repayments, $5 million in sales of bank assets, $45 million in money market borrowings, $60 million in acceptable loan requests, $10 million in repayments of bank borrowings, $5 million in cash outflows to cover other operating expenses, and $10 million in dividend payments to its stockholders. This banks net liquidity position for the week is: A)$30 million B)$20 million C)$10 million D)$15 million E)None of the above Answer: D 69. There is a trade-off problem between liquidity and: A)Risk exposure B)Safety. C)Profitability D)Efficiency E)None of the above Answer: C 70. Financial institutions face significant liquidity problems because of: A)Imbalances between the maturities of their assets and their principal liabilities. B)Their high proportion of liabilities subject to immediate withdrawal. C)Their sensitivity to changes in interest rates. D)Both A and B E)All of the above. Answer: E 71. Sources of liquidity for banks include: A)Deposit inflows B)Money market borrowings C)Sales of marketable securities D)Loan repayments E)All of the above Answer: E 72. Which of the following is not a source of liquidity for financial institutions? A)Deposits B)Money market borrowings C)Sales of marketable securities D)Dividend payments to stockholders E)All of the above Answer: D 73. Which of the following liquidity strategies is the most effective for banks today? A)Asset Management B)Liability Management C)Balanced Liquidity Management D)All of the above E)A and B above Answer: C 74. When a banks sources of liquidity exceed it uses of liquidity, the bank will have a _ liquidity gap. A)Positive B)Negative C)Cyclical D)Seasonal E)None of the above Answer: A 75. Core deposits, hot money, and vulnerable money are categories of funds under which of the following methods of estimating a banks liquidity needs? A)Sources and Uses of Funds Approach B)Structure of Funds Approach C)Liquidity Indicator Approach D)None of the above E)A and C Answer: B 76. Factors that influence a banks choice among the various sources of reserves include which of the following? A)Immediacy of the need B)Duration of the need C)Interest rate outlook D)Regulations E)All of the above Answer: E 77. The risk that liquid funds will not be available in the volume needed by a bank is often called: A)Market risk B)Price risk C)Availability risk D)Interest-rate risk E)None of the above Answer: C 78. A bank following an _ liquidity management strategy must take care that those assets with the least profit potential are sold first. The strategy that correctly fills in the blank in the foregoing sentence is: A)Asset conversion B)Liability management C)Availability D)Funds source E)None of the above Answer: A 79. When some of a banks expected demand for liquidity are stored in its assets, while other unexpected cash needs are met from near-term borrowings this approach to liquidity management is described by which of the terms listed below? A)Liability management B)Asset conversion C)Borrowed liquidity management D)Balanced liquidity management E)None of the above Answer: D 80. The notion that bank management should strive to meet all good loans that walk in the door in order to build lasting customer relationships is referred to as the: A)Asset conversion liquidity strategy B)Customer relationship doctrine C)Loan accommodation doctrine D)Balanced funds management doctrine E)None of the above Answer: B 81. A bank manager responsible for overseeing the institutions legal reserve account is called: A)Reserve manager B)Money market manager C)Money position manager D)Legal counselor E)None of the above Answer: C 82. If a banks management uses the discipline of the financial marketplace to gauge its liquidity position one indicator of this market test of the adequacy of a banks liquidity position is: A)The banks return on equity capital B)The volume of bank stock outstanding C)The banks return on assets D)The size of risk premiums on CDs the bank issues E)None of the above Answer: D 83. Which of the following is an example of a use of funds for the bank? A)A customer withdraws $1000 from their account B)A borrower repays $1500 of a loan they have received C)The bank issues a $1,000,000 CD D)The bank sells $5,000,000 of T-Bills E)None of the above are uses of funds Answer: A 84. Which of the following is an example of a source of funds? A)A customer withdraws $1000 from their account B)A borrower repays $1500 of a loan they have received C)A bank increas