11 - Managing Liquidity

Front 1

1. 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

Back 1

a

Front 2

2. 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.

Back 2

b

Front 3

3. 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

Back 3

c

Front 4

4. 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

Back 4

d

Front 5

5. 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.

Back 5

e

Front 6

6. 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

Back 6

a

Front 7

7. The Federal Reserve has reduced the use of reserve requirements as a monetary policy tool because:
a. the Fed has focused on controlling short-term interest rates.
b. of the increased use of sweep accounts.
c. reserve requirements are a "tax” on banks .
d. All of the above.
e. a. and c. only.

Back 7

d

Front 8

8. 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.

Back 8

d

Front 9

9. 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 lagging reserve accounting system.
d. an actual reserve accounting system.
e. a holding reserve accounting system.

Back 9

c

Front 10

10. 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.

Back 10

e

Front 11

11. 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.

Back 11

a

Front 12

12. 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.

Back 12

d

Front 13

13. Which of the following is a discretionary factor that will increase a bank's daily reserves held at the Federal Reserve?
a. The prior day's immediate cash letter
b. Federal funds purchased
c. Deposits from the U.S. Treasury
d. Currency received from the Federal Reserve
e. Deficits at the local clearinghouse

Back 13

b

Front 14

14. 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. The previous day’s immediate cash letter
d. Currency received from the Federal Reserve
e. Deficits at the local clearinghouse

Back 14

d

Front 15

15. 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

Back 15

e

Front 16

16. 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. Receiving a discount window loan
c. Remittances charged
d. Excess balances at the local clearing house
e. Federal funds sold

Back 16

c

Front 17

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

Back 17

c

Front 18

18. 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

Back 18

d

Front 19

19. 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

Back 19

Answer: e
Note: A repurchase agreement is a liability.

Front 20

20. 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

Back 20

a

Front 21

21. 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. A bank should consider all of the above when selling securities to meet liquidity needs.

Back 21

e

Front 22

22. 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. A bank should consider all of the above when increasing liabilities to meet liquidity needs.

Back 22

d

Front 23

23. 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

Back 23

b

Front 24

24. 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.

Back 24

a

Front 25

25. Correspondent banking services would include which of the following?
a. Check collection
b. Data processing services
c. Federal funds trading
d. all of the above
e. a. & c. only

Back 25

d

Front 26

26. There is a short-run trade-off between a bank’s liquidity and _______.
a. asset quality
b. profitability
c. discount window borrowing
d. all of the above
e. a. & b. only

Back 26

b

Front 27

27. 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

Back 27

e

Front 28

28. 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

Back 28

c

Front 29

29. 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.

Back 29

d

Front 30

30. 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

Back 30

c

Front 31

31. Vault cash generally satisfies a bank's liquidity needs.

32. Respondent banks buy services from correspondent banks.

Back 31

False

True

Front 32

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

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

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

Back 32

True

False

False