Types of Financial Management for Commercial Banks

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What does Asset Management aim at?

Deciding the diversified portfolio of sources of fund

Generating the maximum profit for the commercial bank

Minimizing the cost for the commercial bank

Maximizing the return for the commercial bank (correct)

What is the main goal of Liability Management?

Deciding the diversified portfolio of uses of fund

Maximizing the return for the commercial bank

Generating the maximum profit for the commercial bank

Minimizing the cost for the commercial bank (correct)

What is the purpose of Liquidity Management?

Deciding the diversified portfolio of uses of fund

Minimizing the cost for the commercial bank

Allowing the bank to pay off its liabilities in case of having a deposit outflow (correct)

Maximizing the return for the commercial bank

Why can't the reserves be equal to zero according to Liquidity Management?

To allow the bank to pay off its liabilities in case of having a deposit outflow Signup and view all the answers

What does the Central bank obligate banks to do in terms of liquidity management?

Keep part of their deposits in liquid money as required reserves Signup and view all the answers

What is 'Excess Reserves' in liquidity management?

The additional amount of liquid money kept by the commercial bank Signup and view all the answers

What is the formula for Excess Reserves (ER) in a bank?

ER = excess reserve ratio (rE) * Deposits (D) Signup and view all the answers

What is the purpose of liquidity management in a bank?

To manage the reserves optimally Signup and view all the answers

How can a bank cover a liquidity shortage if actual reserves are lower than the required reserves?

Selling securities Signup and view all the answers

What happens if a bank borrows from the Central Bank to cover a liquidity shortage?

The bank would pay the discount rate Signup and view all the answers

What is the formula for Total Reserves (R) in a bank?

R = Required Reserves + Excess Reserves Signup and view all the answers

What does the excess reserve ratio refer to in a bank?

The optional ratio that could differ from one commercial bank to another Signup and view all the answers

What is the function of financial markets?

To channel funds from households, firms, and governments with surplus funds to those with a shortage of funds Signup and view all the answers

What are securities in the context of financial markets?

Claims on the future income or assets of the borrower Signup and view all the answers

How is direct finance conducted in the financial markets?

By trading securities (financial instruments) Signup and view all the answers

What is the classification of financial markets based on debt and equity?

Debt Vs. Equity Markets Signup and view all the answers

In indirect finance, how are funds transferred in financial markets?

Via financial intermediaries Signup and view all the answers

What are debt instruments and equity in the context of obtaining funds in a financial market?

Ways for a firm or an individual to obtain funds Signup and view all the answers

Which type of securities are considered long-term and have no maturity date?

Equities Signup and view all the answers

In which market are only short-term debt instruments traded?

Money market Signup and view all the answers

What does an investment bank do in the primary market?

Guarantees a price for a corporation's securities Signup and view all the answers

Which market is known for smaller fluctuations in prices, making it safer for investments?

Money market Signup and view all the answers

Where do buyers and sellers of securities meet in one central location to conduct trades?

Organized exchange Signup and view all the answers

Types of Financial Management for Commercial Banks

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