Chapter 15 - Testbank
Student: ___________________________________________________________________________
1. A deep market is defined as a market in
... [Show More] which:
A. low volumes of a particular security are traded.
B. large volumes of a particular security are traded.
C. low-priced securities are traded.
D. high-priced securities are traded.
2. Which of the following are characteristics of a liquid asset?
A. The asset can be turned into cash quickly.
B. Turning the asset into cash will result in low transaction costs.
C. Turning the asset into cash will result in little or no loss in principal value.
D. All of the listed options are correct.
3. Which of the following statements is true?
A. Liquid assets pay high interest rates.
B. Liquid assets bear low default risk.
C. Holding a high proportion of funds in liquid assets will result in increased profitability.
D. All of the listed options are correct.
4. Which of the following statements is true?
A. FIs are required to hold some liquid assets to lessen the threat of insolvency.
B. FIs are required to hold some liquid assets for the purpose of monetary policy.
C. FIs are required to hold some liquid assets for the purpose of taxation implications.
D. FIs are required to hold some liquid assets to lessen the threat of insolvency, for the purpose of
monetary policy and for the purpose of taxation implications.
5. Reserve requirement tax is defined as:
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.
6. Liquid asset ratio describes:
A. The minimum ratio of liquid assets to total equity set by the central bank.
B. The minimum ratio of liquid assets to total liabilities set by the central bank
C. The minimum ratio of liquid assets to total assets set by the central bank.
D. None of the listed options are correct.
7. Which of the following statements relating to required stable funding is true?
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.
8. Which of the following statements is true?
A. All banks are required to comply with the liquidity coverage ratio by 2015 and will need to hold highquality liquefiable assets that can be converted to cash to meet liquidity needs for 5 days.
B. All banks are required to comply with the liquidity coverage ratio by 2015 and will need to hold highquality liquefiable assets that can be converted to cash to meet liquidity needs for 30 days.
C. Large banks are required to comply with the liquidity coverage ratio by 2015 and will need to hold highquality liquefiable assets that can be converted to cash to meet liquidity needs for 30 days, whereas small
banks will only need to meet liquidity needs for 5 days.
D. These days only small banks are subject to the liquidity requirement.
9. Which of the following statements is true?
A. In the current situation, only small FIs have to hold 9 per cent of their liabilities in specified high-quality
liquefiable assets.
B. Currently, FIs are required to have in place a regulator-approved liquidity management strategy.
C. Currently, FIs are not subject to the user-pays approach.
D. Currently, FIs are required to have in place a regulator-approved liquidity management strategy and
only small FIs have to hold 9 per cent of their liabilities in specified high-quality liquefiable assets.
10. Which of the following statements is true?
A. The stock of liquid assets held in an FI's balance sheet will depend on the FI's willingness to trade off
liquidity against returns and on its ability to use purchased liquidity.
B. The stock of liquid assets held in an FI's balance sheet will depend on the FI's willingness to trade off
liquidity against returns but not on its ability to use purchased liquidity.
C. The stock of liquid assets held in an FI's balance sheet will not depend on the FI's willingness to trade off
liquidity against returns, it will depend, however, on its ability to use purchased liquidity.
D. The stock of liquid assets held in an FI's balance sheet will neither depend on the FI's willingness to
trade off liquidity against returns, nor on its ability to use purchased liquidity.
11. Potential sources of liquidity include investment in:
A. housing loans.
B. new equipment.
C. short-term securities such as treasury notes and bank accepted bills.
D. housing loans and investment in bank accepted bills.
12. Which of the following items are sources of stored liquidity?
A. interbank market loans
B. large certificates of deposits
C. interbank market for exchange settlement funds
D. semi-government securities
13. Which of the following statements is true?
A. Bank accepted bills classify as purchased liquidity.
B. Loans to short-term money market dealers classify as purchased liquidity.
C. Securities sold under agreements to repurchase classify as stored liquidity.
D. Certificates of deposits classify as stored liquidity.
14. What does 'constrained optimisation' in the context of liquidity management refer to?
A. It refers to the case that any liquid asset holdings over and above the reserve requirements imposed by
regulators need to be balanced by the same amount of short-term liabilities.
B. It refers to the case that any increases in an FI's current liability holdings incur a decrease in the
profitability of the FI's liquidity holdings.
C. It refers to the case that any liquid asset reserve requirements imposed by regulators set a minimum
bound on the level of liquid reserve assets in the balance sheet.
D. It refers to the case that any liquid asset reserve requirements imposed by regulators need to be
balanced by the same amount of short-term liabilities.
15. Which of the following statements is true?
A. Australian FIs are required to hold a minimum of three days' estimated cash requirements to enable
them to manage a short run on deposits.
B. Australian FIs are required to hold a minimum of five days' estimated cash requirements to enable them
to manage a short run on deposits.
C. Australian FIs are required to hold a minimum of seven days' estimated cash requirements to enable
them to manage a short run on deposits.
D. None of the listed options are correct.
16. Which of the following are determinants of an FI's optimal liquidity?
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.
17. Which of the following statements is true?
A. An increase in the liquidation costs of non-liquid assets encourages an FI to shift more funds into more
liquid, lower yielding assets.
B. A decrease in the yield of non-liquid assets will reduce holdings of liquid assets due to higher
opportunity costs of holding liquid assets.
C. The greater the volatility of the level of deposits, the greater the optimal proportion of reserve assets
held to deposits.
D. An increase in the liquidation costs of non-liquid assets encourages an FI to reduce their holdings of
more liquid, lower yielding assets.
18. The supervision of FI's liquidity management is undertaken by the:
A. ASIC.
B. RBA.
C. APRA.
D. ACCC.
19. Scenario analysis refers to the part of a bank's liquidity policy that caters for:
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.
20. APS210 specifies that 'high-quality liquid assets' must be free from encumbrances and include:
A. cash.
B. long-term loans.
C. cash and eligible securities approved by APRA.
D. cash and long-term loans.
21. Which of the following elements should be included in an FI's liquidity management strategy?
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.
22. Which of the following statements is true?
A. Going-concern scenario refers to abnormal behaviour of cash flows in the course of business.
B. Going-concern scenario focuses on the bank's liquidity policy in a worst case scenario.
C. Going-concern scenario focuses on the bank's day-to-day liquidity management.
D. None of the listed options are correct.
23. Which of the following liability products does not have withdrawal risk?
A. wholesale CDs
B. money market deposit accounts
C. cheque and retail saving accounts
D. All of the given options have withdrawal risk.
24. Which of the following observations concerning repurchase agreements is not true?
A. They can be viewed as collateralised short term loans where a financial security is swapped for cash.
B. The repurchase market is a highly liquid and flexible source of funds for DIs needing to access liquidity
to offset deposit withdrawals.
C. Repos under the intra-day facility system are discouraged and attract an interest rate charge of 25 basis
points above the target cash rate.
D. It is difficult to transact a repurchase agreement borrowing late in the day.
25. Which of the following is a mechanism used by FI managers to reduce demand deposit withdrawal
rates?
A. implicit interest payments
B. minimum balance requirements
C. explicit interest payments
D. There is no way to mitigate withdrawal risk.
26. Which of the following procedures does APRA require to be adopted by FIs as part of their liquidity
management strategies?
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.
27. Which of the following statements is true?
A. The issuers of Treasury notes are local governments.
B. The issuers of Treasury notes are state governments.
C. The issuer of Treasury notes is the Australian federal government.
D. The issuers of Treasury notes are corporations.
28. Which of the following statements is true?
A. Treasury bonds are short-term instruments.
B. Corporate promissory notes are long-term instruments.
C. Corporate bonds are long-term instruments.
D. Semi-government bonds are short-term instruments. [Show Less]