Which one of the following statements is FALSE? Select one: O a. Holding more liquid funds will reduce the liquidity risk faced by a bank. O b. An increase in the yield of non-liquid assets is likely to increase holdings of liquid assets O c. Loans from short-term money market dealers are classified as purchased liquidity O d. Higher liquidation costs of non-liquid assets encourage a bank to hold more liquid assets

Which one of the following statements is FALSE? Select one: O a. Holding more liquid funds will reduce the liquidity risk faced by a bank. O b. An increase in the yield of non-liquid assets is likely to increase holdings of liquid assets O c. Loans from short-term money market dealers are classified as purchased liquidity O d. Higher liquidation costs of non-liquid assets encourage a bank to hold more liquid assets

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

What is not an advantage of a Treasury (T) Note? Select one: a. Extremely liquid security. b. Loss of potential purchasing power (inflation > yield). c. An investor’s capital is secure. d. Better returns than a bank savings account.
How should a bank structure its liquid assets portfolio to take advantage of falling interest rates ? a. The bank should invest in short-term securities to minimise capital loss b. The bank should invest in long term securities to maximise capital gains. c. The bank should borrow at fixed interest rates d. The bank should issue certificate deposits with fixed interest rates. e. The bank should hold cash to maximise its interest income. Which option is correct
Select all that are true regarding liquidity risk for a bank. Consumer trust in the bank ensures a flow of funds from customers, reducing this risk. O A reduced access to credit markets reduces the bank's liquidity risk. Higher liquidity risk is a result of lower borrowing costs to the bank. O The flow of funds form the bank's clearing of payments reduces this risk. | This risk creates an opportunity cost which could result in a hole in the risk management strategy of the bank. O An increase in the bank's credit rating will help to reduce their liquidity risk.
Which of the following has caused banks difficulty in estimating liquidity needs?A. competition for loans from other financial institutionsB. deregulation of interest rate ceilings on depositsC. competition for loans from nonfinancial institutionsD. a, b, and c
A bank has a positive repricing gap. This implies that a. some RSAs are financed by fixed-rate liabilities. b. some RSLs are financing fixed-rate assets. c. some RSAs are financing equity. d. the bank has no fixed-rate assets.
A bank wants to implement a loan pricing model and has to look at several variables to consider. Please select the variable that is incorrectly described. a. A profit margin to provide the bank with an adequate return on capital. b. Risk premium to counter the effect of default risk. c. Cost of funding that include the cost of bonds issued. d. Operating costs that include the cost of interest paid to depositors.
If a bank has a positive repricing gap (RSAs > RSLs), then: Does this bank have reinvestment or refinancing risk? If interest rates increase, net interest income will: A. Reinvestment risk, increase B. Reinvestment risk, decrease C. Refinancing risk, increase D. Refinancing risk, decrease
When a bank increases its provision for loan losses, it generally indicates the bank expects an increase in nonperforming and noncurrent loans lower net charge-offs an increase in net operating income increase demand for liquidity
6) Bruce the Bank Manager can reduce interest rate risk by assets to increase their rate sensitivity or, alternatively, liabilities. A) shortening; lengthening B) shortening; shortening C) lengthening; lengthening D) lengthening; shortening the duration of the bank's the duration of the bank's
Match the correct type of bank risk with the appropriate associated statement. 1.The possibility that a borrower could make late, reduced, or no payments on their loans. 2.Bank management may make poor strategic decisions that result in lower profits for the bank. 3.Hackers could break into bank customer accounts. 4.Inability to access capital markets and higher borrowing costs could hurt the bank's ability for funding opportunities. 5.Changes in the yield curve could increase short-term rates and/or decrease long-term rates, resulting in a lower net interest margin for the bank. 6.General economic conditions can affect banks in the U.S. Liquidity Risk 7.Differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities could put the bank's earnings at risk. Credit Risk Business Operations Risk Market risk Interstate Rate Risk Liquidity Risk
If a bank is exposed to refinancing risk, its profitability is higher if interest rates interest rates fall; rise rise; stay the same rise; rise rise; fall and if it is exposed to reinvestment risk, its profitability is higher if fall; fall
If a bank has a negative gap, it is likely that it has a: a. positive duration gap. b. negative duration gap. c. low stock price. d. high return on assets.

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