1. This refers to the funds that are tied up in transit or in the banking system 2. A type of risk where the issuer of the security will not pay interest or principal
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1. This refers to the funds that are tied up in transit or in the banking system
2. A type of risk where the issuer of the security will not pay interest or principal
Step by step
Solved in 2 steps
- a. What is the nature of an off-balance-sheet activity? How does a bank benefit from such activities? b. Evaluate the importance of bank liquidity risk management. pleaseExplain the concept of liquidity risk in banking. Why is it important to control liquidity risk?Moral hazard caused by Deposit Insurance Schemes refers to: Question 2Answer a. The placing of funds from immoral activities into the banking system. b. The loss exposure faced by an insurer when the provision of insurance encourages the insured to take less risks. c. The loss exposure faced by an insurer when the provision of insurance encourages the insured to take more risks. d. The excess profits earned by banks from insured deposits.
- 1. Bank regulation based on private purchases and sales of banks’ risk is known as: a) liquidity risk regulationb) credit risk regulationc) market-based risk regulation d) systemic risk regulationc) What are the benefits and risks of off-balance-sheet (OBS) activities to a bank?Which of the following is NOT an advantage of depositing funds into a bank account (compared to directly purchasing corporate bonds and shares): Options 1. Higher transactions costs 2. Monitoring performed by the bank on behalf of the depositor 3. Better liquidity if funds are needed quickly 4. Efficient payment services 5.Reduced price risk if funds are needed immediately
- explain three important factors that account for challenges to liquidity risk management in a situation of a bankRole of Central Banks and Moral Hazards How does central bank intervention outweigh the risks of moral hazard?A deposit institution can offset its liquidity risk to reduce its net deposit drains by reducing its assets through all of the following methods except: a. Borrowing funds or issuing equity. b. Calling back its loans. c. Use cash reserve. d. Selling securities.
- To minimize systemic risk in the banking system, which prudential measure has been put in place in the General Banking Law and the Manual of Regulations for Banks to safeguard them from too large a risk exposure to a particular borrower or corporate group?* Reserves Single Borrower's Limit DOSRI (directors, officers, stockholders and their related interests) Limit Equity Investment Limit Loan Loss provisioningDo you believe the bank is exposed to sovereign risk? Explain.Do you believe the bank is exposed to sovereign risk? Explain.Do you believe the bank is exposed to sovereign risk? Explain.