Financial Liquidity and Cost Management Quiz
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Questions and Answers

Which liquidity management strategy involves storing liquidity in cash and marketable securities?

  • Asset Liquidity Management (correct)
  • Borrowed Liquidity Management
  • Balanced Liquidity Management
  • None of the above

    • Which approach for estimating financial institutions' liquidity needs involves forecasting loans demand and deposits availability?

  • Sources and Uses of Funds Approach (correct)
  • Structure of Funds Approach
  • Liquidity Indicator Approach
  • None of the above

    • Who is interested in analyzing banks' financial statements?

  • Regulators
  • Investors
  • Auditors
  • All of the above (correct)

    • Which type of investment instrument typically reaches maturity within 1 year and has low risk?

    <p>Treasury Bills</p> Signup and view all the answers

    Which investment maturity strategy aims to maximize income potential and requires availability of other sources of funding for short-term liquidity assets?

    <p>The Back-End Load Maturity Policy</p> Signup and view all the answers

    Which approach to investment strategy involves deciding and adapting based on expectations or forecasts on interest rate movements?

    <p>The Rate Expectation Approach</p> Signup and view all the answers

    Which of the following funding sources is considered the most stable for commercial banks?

    <p>Customer deposits</p> Signup and view all the answers

    Why are retail funding sources more stable than wholesale funding sources?

    <p>All of the above</p> Signup and view all the answers

    Why are wholesale funding sources more volatile than core deposits?

    <p>All of the above</p> Signup and view all the answers

    What are the risks associated with wholesale funding based banks?

    <p>All of the above</p> Signup and view all the answers

    Which one of the following is NOT a type of transaction deposit mentioned in the text?

    <p>Passbook savings deposit</p> Signup and view all the answers

    Which one of the following is a characteristic of non-transaction savings deposits?

    <p>Higher interest rates than transaction deposits</p> Signup and view all the answers

    Which pricing strategy sets fees based on the number of transactions passing through the account and the average balance held in the account over a period?

    <p>Conditional pricing</p> Signup and view all the answers

    What is the purpose of relationship pricing for deposits?

    <p>To target high-quality customer relationships</p> Signup and view all the answers

    Which of the following is a benefit of selling non-performing loans from banks' balance sheets?

    <p>Release of RWAs</p> Signup and view all the answers

    What is the relationship between Return on Equity (ROE) and Price to Tangible Book Value (P/TBV)?

    <p>Positive correlation</p> Signup and view all the answers

    What is the main challenge faced by the banking sector in relation to profitability?

    <p>Heavy cost structures</p> Signup and view all the answers

    What is the definition of systemic risk?

    <p>A risk that an event will trigger a loss of confidence in a substantial portion of the financial system</p> Signup and view all the answers

    According to the text, what is the purpose of a bank's capital?

    <p>To protect liability holders from unexpected losses</p> Signup and view all the answers

    What is the Total Risk Based Capital Ratio formula?

    <p>Regulatory Capital = Tier1 + Tier2</p> Signup and view all the answers

    What is the purpose of the Basel III agreements?

    <p>To strengthen global capital and liquidity rules</p> Signup and view all the answers

    What is the method used to measure credit risk exposure in the standard approach?

    <p>External rating given by credit agencies</p> Signup and view all the answers

    Which of the following is a key component of Interest Earning Assets (IEA) for banks?

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

    What is the most important indicator of a bank's funding strategy?

    <p>Due to customers</p> Signup and view all the answers

    What is the formula for Loan to Deposit Ratio (LD Ratio)?

    <p>LD Ratio = Loans / Deposits</p> Signup and view all the answers

    Which of the following is a component of Net Interest Income?

    <p>Total Operating Income</p> Signup and view all the answers

    What is the formula for Positive Yield on Assets (A)?

    <p>Positive Yield on Assets (A) = Interest / Interest Earning Assets (IEA)</p> Signup and view all the answers

    Which of the following is a key component of Interest Bearing Liabilities (IBL) for banks?

    <p>Due to banks</p> Signup and view all the answers

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