Question 1

An FI offers a $2500 minimum balance investment savings account paying 4 per cent annual interest, and there are no service charges as long as the customer maintains the minimum balance.The customer maintains a balance of $5000, and averages 750 cheques per year.Each cheque has a processing cost to the FI of $0.15.What is the annual gross interest return on this account to the customer?

Accepted Answer

A)  $112.50
B)  $100.00
C)  $312.50
D)  $212.50E) A) and B)
F) B) and C) C

Question 2

Managing liabilities as a means of managing liquidity risk involves the trade-off between lower funding cost and higher risk of withdrawals.

Accepted Answer

A) True 
 B)False

Question 3

All of the following are associated with contagious runs except:

Accepted Answer

A)  liability holders not distinguishing between good and bad FIs.
B)  liability holders seeking to quickly turn their liabilities into cash or safe securities.
C)  a contractionary effect on the supply of credit and negative social welfare effects.
D)  an expansionary effect on the money supply.E) C) and D)
F) A) and D)

Question 4

Which of the following elements should be included in an FI's liquidity management strategy?

Accepted Answer

A)  Clearly defined managerial responsibilities and controls.
B)  A formal plan to minimise excess liquidity.
C)  An agreement to predominantly focus on stored liquidity management.
D)  Clearly defined managerial responsibilities and controls and a formal plan to minimise excess liquidity only.E) A) and B)
F) All of the above A

Question 5

Which of the following procedures does APRA require to be adopted by FIs as part of their liquidity management strategies?

Accepted Answer

A)  Liquidity management policy approved by the board.
B)  Procedures for assessing and measuring liquidity.
C)  A formal contingency plan for dealing with a liquidity crisis.
D)  All of the listed options are correct.E) A) and D)
F) B) and D)

Question 6

The challenge of liquidity management is to maintain enough liquidity to avoid a crisis but to sacrifice no more earnings than absolutely necessary.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following are determinants of an FI's optimal liquidity?

Accepted Answer

A)  The variability of deposit inflows and outflows.
B)  The yield on liquid assets.
C)  The acquisition costs of highly non-liquid assets.
D)  All of the listed options are correct.E) B) and D)
F) None of the above

Question 8

Use the following information to answer the question. A current deposit account requires a minimum balance of $500 if annual interest of 5 per cent is to be earned monthly on its deposits.An account holder has maintained an average balance of $300 for the first nine months of the year and $800 for the last three months of the year.She has written an average of 20 cheques a month and is not charged for these services.However, it costs the bank $0.02 to process each cheque.
What is the average return earned (both explicit and implicit)  by the account holder over the full year?

Accepted Answer

A)  2.98 per cent
B)  3.48 per cent
C)  4.28 per cent
D)  4.79 per centE) None of the above
F) B) and C)

Question 9

Reserve requirement tax is defined as:

Accepted Answer

A)  The cost of holding reserves when the central bank pays no-or below market-interest on these balances.
B)  The benefits of holding reserves when the central bank pays above market interest on these balances.
C)  The tax paid on liquidating near-cash assets.
D)  The tax benefit received from liquidating near-cash assets.E) None of the above
F) A) and C)

Question 10

Assume the average management cost per account per year is $200 and the average fees earned per account per year is $170.The average annual size of account is $1800.What is the average implicit interest rate (round to two decimals) ?

Accepted Answer

A)  -1.67 per cent
B)  1.67 per cent
C)  4.86 per cent
D)  15 per centE) B) and C)
F) B) and D)

Question 11

Scenario analysis refers to the part of a bank's liquidity policy that caters for:

Accepted Answer

A)  a range of predictable events, to ensure that the FI can operate under these operating conditions.
B)  worst-case events only, to ensure how worst-case events affect the FI's operating conditions.
C)  the most likely scenario, to ensure that the FI's liquidity policy is still valid.
D)  a range of specific events, to ensure that the FI can operate under a wide spectrum of operating conditions.E) C) and D)
F) A) and B) D

Question 12

Regulators seek to provide depositor protection to depositors than other FI creditors because deposits are:

Accepted Answer

A)  a critical part of the financial system as they facilitate economic transactions.
B)  the main source of funding for banks.
C)  the primary form of savings for individuals and loss of deposits causes significant hardship for depositors.
D)  All of the listed options are correct.E) None of the above
F) A) and B)

Question 13

Graphically show the relationship between funding cost and funding or withdrawal risk.Explain your graph.

Accepted Answer

A DI HAS TO TRADE OFF THE BENEFITS OF AT...

Question 14

Basel III liquidity reforms costs are:

Accepted Answer

A)  reduced profitability due to more liquid balance sheets.
B)  reduced impact of the liquidity coverage ratio and net stable funding ratio on credit unions and building societies.
C)  competitiveness of Australian banks will be negatively impacted if other countries do not take up the reforms.
D)  All of the listed options are correct.E) A) and D)
F) B) and C)

Question 15

What is the benefit of a regulatory guarantee or deposit insurance program for liability holders of FIs?

Accepted Answer

A)  It decreases the likelihood contagious runs.
B)  It increases concerns about the asset quality of FI.
C)  It increases concerns about solvency of an FI.
D)  It provides preference to those who are first in line to withdraw funds over those last in line.E) B) and C)
F) A) and D)

Question 16

The gross interest return is calculated as explicit interest less implicit interest.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements relating to required stable funding is true?

Accepted Answer

A)  The required stable funding (RSF)  is found by subtracting the value of assets held and funded by the FI, multiplied by a specific RSF factor assigned to specific asset types.
B)  The RSF is found by adding the value of assets held and funded by the FI, multiplied by a specific RSF factor assigned to specific asset types.
C)  Assets that are more liquid receive a higher RSF factor.
D)  The RSF amount is determined by the liquidity characteristics of the FI's various on-balance sheet contingent exposures.E) C) and D)
F) A) and B)

Question 18

The average implicit interest rate can be calculated as follows: the difference between an FI's average:

Accepted Answer

A)  management costs per account per year and the average fees earned per account per year, multiplied by the average annual size of the account.
B)  management costs per account per year and the average fees earned per account per year, divided by the average annual size of the account.
C)  fees earned per account per year and average management costs per account per year, multiplied by the average annual size of the account.
D)  fees earned per account per year and average management costs per account per year, divided by the average annual size of the account.E) C) and D)
F) B) and D)

Question 19

Why do FIs face a return or interest earnings penalty by holding large amounts of assets such as cash, T-bills, and T-bonds to reduce liquidity risk?

Accepted Answer

A)  These assets carry a reserve requirement tax.
B)  These assets offer low returns.
C)  These assets offer higher returns that reflect their risk.
D)  Inflation increases the purchasing power value of these assets.E) B) and D)
F) All of the above

Question 20

Which of the following are the two main sources of exchange settlement liquidity for Australian FIs provided by RBA repos?

Accepted Answer

A)  ESAs and intra-day repurchase agreement facilities.
B)  Inter-day repurchase agreement facilities and overnight repurchase agreement facilities.
C)  ESAs and inter-day repurchase agreement facilities.
D)  Intra-day repurchase agreement facilities and overnight repurchase agreement facilities.E) B) and D)
F) C) and D)

Exam 15: Liability and Liquidity Management

Correct Answer
verified
C

Managing liabilities as a means of managing liquidity risk involves the trade-off between lower funding cost and higher risk of withdrawals.

Correct Answer
verified

All of the following are associated with contagious runs except:

Correct Answer
verified

Which of the following elements should be included in an FI's liquidity management strategy?

Correct Answer
verified
A

Which of the following procedures does APRA require to be adopted by FIs as part of their liquidity management strategies?

Correct Answer
verified

The challenge of liquidity management is to maintain enough liquidity to avoid a crisis but to sacrifice no more earnings than absolutely necessary.

Correct Answer
verified

Which of the following are determinants of an FI's optimal liquidity?

Correct Answer
verified

Correct Answer
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Reserve requirement tax is defined as:

Correct Answer
verified

Assume the average management cost per account per year is $200 and the average fees earned per account per year is $170.The average annual size of account is $1800.What is the average implicit interest rate (round to two decimals) ?

Correct Answer
verified

Scenario analysis refers to the part of a bank's liquidity policy that caters for:

Correct Answer
verified
D

Regulators seek to provide depositor protection to depositors than other FI creditors because deposits are:

Correct Answer
verified

Graphically show the relationship between funding cost and funding or withdrawal risk.Explain your graph.

Correct Answer
verified
A DI HAS TO TRADE OFF THE BENEFITS OF AT...
View Answer

Basel III liquidity reforms costs are:

Correct Answer
verified

What is the benefit of a regulatory guarantee or deposit insurance program for liability holders of FIs?

Correct Answer
verified

The gross interest return is calculated as explicit interest less implicit interest.

Correct Answer
verified

Which of the following statements relating to required stable funding is true?

Correct Answer
verified

The average implicit interest rate can be calculated as follows: the difference between an FI's average:

Correct Answer
verified

Why do FIs face a return or interest earnings penalty by holding large amounts of assets such as cash, T-bills, and T-bonds to reduce liquidity risk?

Correct Answer
verified

Which of the following are the two main sources of exchange settlement liquidity for Australian FIs provided by RBA repos?

Correct Answer
verified

Exam 15: Liability and Liquidity Management

Correct AnswerverifiedC

Managing liabilities as a means of managing liquidity risk involves the trade-off between lower funding cost and higher risk of withdrawals.

Correct AnswerverifiedShow Answer

All of the following are associated with contagious runs except:

Correct AnswerverifiedShow Answer

Which of the following elements should be included in an FI's liquidity management strategy?

Correct AnswerverifiedA

Which of the following procedures does APRA require to be adopted by FIs as part of their liquidity management strategies?

Correct AnswerverifiedShow Answer

The challenge of liquidity management is to maintain enough liquidity to avoid a crisis but to sacrifice no more earnings than absolutely necessary.

Correct AnswerverifiedShow Answer

Which of the following are determinants of an FI's optimal liquidity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Reserve requirement tax is defined as:

Correct AnswerverifiedShow Answer

Assume the average management cost per account per year is $200 and the average fees earned per account per year is $170.The average annual size of account is $1800.What is the average implicit interest rate (round to two decimals) ?

Correct AnswerverifiedShow Answer

Scenario analysis refers to the part of a bank's liquidity policy that caters for:

Correct AnswerverifiedD

Regulators seek to provide depositor protection to depositors than other FI creditors because deposits are:

Correct AnswerverifiedShow Answer

Graphically show the relationship between funding cost and funding or withdrawal risk.Explain your graph.

Correct AnswerverifiedA DI HAS TO TRADE OFF THE BENEFITS OF AT...View AnswerShow Answer

Basel III liquidity reforms costs are:

Correct AnswerverifiedShow Answer

What is the benefit of a regulatory guarantee or deposit insurance program for liability holders of FIs?

Correct AnswerverifiedShow Answer

The gross interest return is calculated as explicit interest less implicit interest.

Correct AnswerverifiedShow Answer

Which of the following statements relating to required stable funding is true?

Correct AnswerverifiedShow Answer

The average implicit interest rate can be calculated as follows: the difference between an FI's average:

Correct AnswerverifiedShow Answer

Why do FIs face a return or interest earnings penalty by holding large amounts of assets such as cash, T-bills, and T-bonds to reduce liquidity risk?

Correct AnswerverifiedShow Answer

Which of the following are the two main sources of exchange settlement liquidity for Australian FIs provided by RBA repos?

Correct AnswerverifiedShow Answer

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C

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A

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D

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A DI HAS TO TRADE OFF THE BENEFITS OF AT...
View Answer

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