Banking Management Quiz

False (B)

Asset Liability Management

<p>Structured Investment Vehicle (SIV)</p> Signup and view all the answers

<p>Short-term funding = Less than one year funding Long-term funding = Using securitization Off-balance sheet activities = Activities not recorded directly on the balance sheet Interbank markets = Buying and selling excess liquidity among banks</p> Signup and view all the answers

<p>The growth in off-balance sheet businesses (B)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>liquidity</p> Signup and view all the answers

<p>To maximize profits and shareholder wealth (B)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>To enhance profitability while controlling and limiting risk.</p> Signup and view all the answers

<p>expenses</p> Signup and view all the answers

<p>losses</p> Signup and view all the answers

<p>Having enough funds available to meet loan commitments (B)</p> Signup and view all the answers

<p>NIM = Measure of bank performance Hedging = Risk management strategy Risk Averse = Preference to minimize risk ALM = Asset and Liability Management</p> Signup and view all the answers

<p>Attitude towards risk (D)</p> Signup and view all the answers

<p>Investment Decisions = Allocate finance efficiently Financing Decisions = Acquire finance effectively Capital Management = Maintain solvency and cushion against losses Asset Management = Maximize returns and diversify assets</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>Asset and Liability Management</p> Signup and view all the answers

<p>Banks must continually adjust assets and liabilities.</p> Signup and view all the answers

<p>Profitability vs. liquidity (B)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Bank runs</p> Signup and view all the answers

<p>insurance</p> Signup and view all the answers

<p>To focus on liquidity and interest rate risk (A)</p> Signup and view all the answers

<p>Borrowing from other banks = To enhance short-term liquidity Selling securities = To convert assets into cash quickly Borrowing from the central bank = Last resort for obtaining funds Calling in loans = To reduce outstanding debt quickly</p> Signup and view all the answers

<p>The difference between interest earned and interest paid (B)</p> Signup and view all the answers

<p>Liquidity management</p> Signup and view all the answers

<p>To borrow short and lend long for extra margin (C)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Unused overdrafts and credit lines</p> Signup and view all the answers

<p>reserve</p> Signup and view all the answers

<p>Mismatching = Borrowing short, lending long RRR = Reserve requirement by the central bank Negotiable CDs = Instruments used for liability management Loan demand = Need for funds by borrowers</p> Signup and view all the answers

<p>Ensuring sufficient funds while earning the best return (B)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Strong economic conditions with high loan demand</p> Signup and view all the answers

<p>To increase earnings and maintain sufficient liquidity (C)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>Net Liquid Assets</p> Signup and view all the answers

<p>VL</p> Signup and view all the answers

<p>To pay off existing debts immediately (A)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Mismatching of liabilities and assets</p> Signup and view all the answers

The practice of financial institutions mitigating financial risks arising from a mismatch between assets and liabilities.

Financial instruments used by banks to hedge against risks.

Investments made by banks, including loans and securities.

Funding sources for banks, including deposits, borrowed funds, and securitization.

Activities undertaken by banks that are not reflected on the balance sheet, like derivatives, trading, and guarantees.

A special-purpose fund that borrows short-term to invest in long-term assets.

The risk that a bank may not be able to meet its short-term obligations due to a lack of available assets.

The risk that changes in interest rates will adversely affect a bank's profitability.

The process of making decisions about how to acquire and manage financial resources, encompassing investment, financing, and resource control.

Decisions about allocating funds to various assets, such as loans, securities, and other investments.

Decisions about how to obtain financial resources, including borrowing, issuing bonds, or selling shares.

The process of ensuring that a bank has sufficient capital to absorb potential losses and meet regulatory requirements.

The practice of managing a bank's assets and liabilities to optimize profit and value while managing risk and liquidity.

The goal of asset management is to maximize the returns on loans and securities by charging the highest possible interest rates.

The process of diversifying a bank's portfolio of assets to reduce the risk of over-exposure to a single sector

Having enough liquid assets to meet immediate financial obligations and unexpected demands.

Holding a high proportion of liquid assets on the balance sheet results in lower income and profits for banks.

Measures a bank's ability to meet short-term obligations, ensuring enough cash and readily available liquid assets.

Banks make money on both sides of their balance sheet, maximizing returns on assets and minimizing the cost of acquiring funds.

A strategy to minimize the cost of deposits by offering the lowest possible interest rates while still attracting funds.

The difference between interest earned on assets and interest paid on liabilities.

The difference between a bank's net liquid assets and its unpredictable or volatile liabilities.

A method for assessing a bank's ability to meet its short-term payment obligations.

The shortfall of liquidity that a bank might face, caused by a mismatch between its available funds and potential outflows.

A risk management technique that assesses the impact of interest rate changes on a bank's net interest income and margin.

Assets and liabilities that will be repriced within a specific time horizon due to their maturity or variable interest rates.

The difference between interest-sensitive assets and interest-sensitive liabilities over a specific time horizon.

Holding a larger amount of short-term liabilities compared to short-term assets, a common practice in banks due to their borrowing and lending cycle.

The process of matching the maturities of assets and liabilities to minimize risk and ensure liquidity.

Continuous monitoring of a bank's assets and liabilities to ensure it remains aligned with its strategic goals.

Transactions undertaken by banks to manage risk and improve profitability, such as hedging or investing in new assets.

A bank's willingness to take on risk, which influences its ALM strategy.

A mismatch between a bank's assets and liabilities, where it borrows short-term funds and lends them out long-term, hoping for higher returns.

A strategy used by banks to offset the risk of losses from mismatching by using financial instruments like derivatives.

Variations in the amount of loans and deposits that banks experience during different seasons or economic cycles.

Changes in overall economic health influencing banks' lending and borrowing activities.

Monetary policies implemented by central banks, especially reserve requirements, affect a bank's ability to lend new money by restricting the amount of deposits that can be lent out.

Predicting future movements in money markets based on factors like interest rate changes, and using this forecast to determine loan maturities.

Banks have commitments and guarantees, like unused overdrafts and standby letters of credit, that can be drawn upon during periods of financial stress, requiring banks to account for these potential claims.

A bank's ability to adjust its balance sheet structure in response to unexpected demands for funds or withdrawals, aiming for optimal liquidity while maximizing return on assets.