Liquidity dry up could cause a financial institutions to become balance sheet insolvent. Briefly explain

Q: The advantage of risk-sharing of financial institutions is   Select one: reduced liquidity…

A: Financial institutions like insurers which share risk of others have advantages to customers.

Q: Why might a company want to hedge its balance sheet exposure? What is the paradox associated with…

A: Reason for company to want to hedge its balance sheet exposure: For avoiding the impact of…

Q: In which way CDOs can create a liquidity squeeze in the financial markets

A: The financial market is a market where people trade financial securities and derivates. The…

Q: novation cau

A: Financial markets exhibit asymmetric information in any transaction in which one of the two parties…

Q: Bank capital has no effect on the liquidity activities of banks. Do you agree and why

A: Introduction: Liquidity management of banks are nothing but estimating banks often on their…

Q: Liquidity is the ability of a company to meet its needs for cash in the short and long term. True O…

A: Ratio analysis means where different ratio of various years of years companies has been compared and…

Q: The main reason for the failure of companies is the occurrence of a deficit in liquidity resulting…

A: Cash flow: Cash flow is the flow of cash of the organisation There are two types of cash flows:1.…

Q: Explain how commercial bank mange it balance sheet to maximize its profit without affecting the…

A: Commercial Banks are financial institutions accepting deposits from borrowers and using the deposits…

Q: What reforms to the financial system might reduce its exposure to systemic risk?

A: The important act for the reforms to the financial system that might reduce its exposure to systemic…

Q: Central Banks are in fact not at fault when it comes to turning economy into recession and…

A: Each country has its own central bank and a country’s central bank has the power to control that…

Q: “Financial intermediaries play a crucial role in an economic crisis–they are responsible for both…

A: A financial intermediary is a middlemen between a financial transaction. Examples of financial…

Q: financial intermediaries play a crucial role in an economic crisis-they are responsible for both…

A: Financial intermediaries: Financial intermediaries are organization which are acts as a link between…

Q: Discuss why financial systems are vulnerable to crises.

A: Financial system is the system that consist of marketplace, financial institutions, banks, insurance…

Q: Some banks use regression methods to estimate liquidity need Select one: True False

A: There are various methods used to estimate liquidity

Q: when required reserves fall, banks cease granting new loans, which cause _________(assets/…

A: In Banking Sector, when new loans are given which results in flow of money, it is said that money is…

Q: A bank is insolvent if Group of answer choices its assets are less than its liabilities. it is…

A: Accounting insolvency happens when the value of a company's debts is more than the value of its…

Q: Bank capital has no effect on the liquidity management activities of banks. Do you agree and why?

A: Introduction: Liquidity management of banks are nothing but estimating banks often on their…

Q: Too much investment in current assets reduces firm profitability, whereas too little investment in…

A: Too much investment in current assets reduces firm profitability: The firm that invests more in…

Q: Factors in financial crises include : a. The existence of hedge funds and tax havens b. A stock…

A: A financial crisis is a situation in which the financial assets in the economy lose their values and…

Q: How does financial crisis affect the overall financial system elaborate with example?

A: Financial crisis is referred to as the wide category of the situation, where the financial assets…

Q: Negative cash flow to creditors

A: The 3 main components of the cash flow statement are as follows: Cash from operating activities…

Q: Should companies preserve their financial flexibility in times of financial crises?

A: Definitions : Financial flexibility : In simple words, financial flexibility can be defined as the…

Q: Why is the study of financial management important? Offer examples of how poor financial management…

A: Financial management plays a crucial role in managing money in all areas of life. It includes…

Q: Debt overhang occurs when: 1. A company is so indebted that it has little incentive to invest as…

A: Meaning of debt overhang: It is a situation in which a high amount of debt is there in the company…

Q: If a bank has a negative gap, it is likely that it has a:   a. positive duration gap. b. negative…

A: interest rate gap give the risk of interest on assets and laibilties  Negative gap indicates that…

Q: EBITDA makes companies with asset-heavy balance sheets look healthier than they may actually be.•…

A: It is abbreviation for Earnings Before Interest, tax , Depreciation, and Amortization. It is used to…

Q: If a company is worried about having enough cash to pay interest to their bondholders, rent to their…

A: Solution: Liquidity means easy of any asset that can be converted in to ready cash in a very short…

Q: The deterioration of the balance sheet of financial institutions leads to : a. a deleveraging…

A: Effect of deterioration on the balance sheet of financial institutions: When a financial…

Q: What would be a sign of a shortage in financial markets?

A: The financial market refers to the market in which people trade financial securities like bonds,…

Q: Financial intermedires play a crucial role in an economic crisis they are responbile for both…

A: Financial intermediaries are the middle person between the financial market and the investors. They…

Q: What does liquidity measure? Explain the trade-Off a firm faces between high-liquidity and…

A: Liquidity means availability of cash and cash equivalents (for example commercial paper, Treasury…

Q: How does the financial system function and why does a financial crisis occur ?

A: Financial system is a full mechanism of movement of funds. Investors invest their money in firms and…

Q: What is the difference between a financial crisis and a company crisis. Explain.

A: Solution                        Difference between a Financial Crisis and a Company CrisisThe…

Q: A negative Cash Flow to stockholder means?

A: A negative cash flow to Stockholder means a situation wherein cash paid to stockholder is less than…

Q: Which of the following is not a source of funds for immediate liquidity purposes? a. Proceeds from…

A: Liquidity refers to the ability to obtain cash so that immediate requirements can be met. It refers…

Q: Minsky’s instability hypothesis

A: Hyman Minsky was a famous American economist.

Q: Explain liquidity risk and how it can affect financial institutions, and discuss the framework used…

A: Liquidity risk: It is the risk of having losses by not meeting its payment obligations in a timely…

Q: If a bank finds that its ROE is too low because it has toomuch bank capital, what can it do to raise…

A: ROE (Return on Equity):-It is the ratio that helps in analyzing a company's profit from shareholder…

Q: How can the financial markets provide liquidity for savers who hold financial instruments but are in…

A: Financial markets A financial market is a place where financial securities like stocks and bonds are…

Liquidity Risk Exposure

Answer: c