16 Questions
What is the main aim of asset management for a commercial bank?
Maximizing the return on funds
What does liquidity management aim to ensure for a commercial bank?
The ability to pay off liabilities in case of deposit outflow
What is the key factor in ensuring liquidity for a commercial bank?
Keeping part of deposits as liquid money
What is the purpose of liability management for a commercial bank?
Deciding a diversified portfolio of sources of fund
What is determined by the required reserve ratio for a commercial bank?
Required Reserves
What is further decided by the manager of a commercial bank in relation to liquidity management?
Excess Reserves Ratio
What is the formula for calculating excess reserves (ER)?
ER = excess reserve ratio (rE) * Deposits (D)
What is the primary concern of liquidity management in a bank?
Optimizing the amount of liquidity to be kept in the bank
What happens if a bank faces a liquidity shortage?
The bank's actual reserves are lower than the required reserves
What is the best solution for covering a liquidity shortage according to the text?
Selling securities
What does the required reserve ratio represent?
The percentage of current prevailing deposits in the bank that must be kept as required reserves
How is excess reserve ratio different from required reserve ratio?
Required reserve ratio is obligatory and is the same for all commercial banks, while excess reserve ratio is optional and could differ from one commercial bank to another
How does a deposit outflow affect a bank's balance sheet?
It leads to a shortage in the required reserves
What happens when a bank borrows from the central bank to cover a liquidity shortage?
The bank would pay the discount rate
What is considered as a worst solution for covering a liquidity shortage according to the text?
Borrowing from central Bank
What are considered as secondary reserves according to the text?
Securities
Learn about the four main types of financial management for commercial banks, including assets management, liability management, liquidity management, and capital adequacy management. Understand the aims and objectives of each type of management in optimizing the financial performance of a commercial bank.
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