5 QUESTION 5You are the bank's liquidity manager. What should you do if the RBA increased the cash rate (overnight interbank borrowing) andwhy? Answer this question by filling in the blanks. Please use the suitable word provided in the round brackets.The risk of illiquidity(increased/decreased/did not change). The cost of illiquidity(increased/decreased/did not change). Therefore it makes sense to(increase/decrease/ maintain) the ESF buffer. As a result your bank will be willing to create(more/less/the same) loans and deposits.

A cash rate is the rate of interest charged by a central bank of the country, as the Reserve Bank of…

Answered: You are the bank's liquidity manager.…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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QUESTION 3 (a) Contrast between overnight policy rate and base lending rate. (b) “In order to enhance the liquidity of a bank, the bank can securitise its assets.”Elaborate the above statement with example.
QUESTION 3 Which of the following actions cannot be used by banks to increase reserves? A. Buy Treasury debt B. Sell loans C. Call loans D. Sell Treasury debt
1 What is the Advantage and Disadvantage of Liquidity management under reserve shortfalls based on the below 4 points1? securities sale 2. reduce loans 3. emergency borrowing from CB 4. borrowings from other banks
What are some of the ways that banks can borrow short-term funds when they need "liquidity"?(Select all that apply; three of the answers below are correct.) Reference: Chapters 11 & 12 They can borrow directly from the Securities & Exchange Commission through the "regulatory" market. They can borrow from the Department of Treasury through the "Treasury" window. They can borrow another bank's reserves through the "fed funds" market. The can engage in a "sale & repurchase agreement" (or "repo") by selling some of their securities to another financial insitution and promising to buy them back the next day. They can borrow directly from the Federal Reserve through the "discount window".
When both deposit and loan interest rates decrease at the same speed in the market, a bank tends to ( ) to make money. (a. reinvest b. refinance c. keep neutral)
1. Rank the following types of bank liabilities, first according to their level of liquidity risk, and then according to their interest rate risk. Then rank them according to their current cost to the bank. Explain why the rankings vary. DDAs Interest-checking accounts MMDAs Small-time deposits Jumbo CDs Federal funds purchased Eurodollar liabilities Federal Home Loan Bank advances
A6) Finance For a bank, what is the tradeoff between having high vs. low capital reserve?
4: Which of the following statements about bank capital are TRUE? Banks hold equity capital to make sure they have enough cash to withstand deposit outflows. Banks with larger leverage ratios have less capital per dollar of assets. A bank holds equity capital to prevent insolvency. The level of bank capital is determined by the owners of the bank without any regulation. The only goal for capital adequacy management is to earn a high return with low risk. The level of bank capital will decrease when a bank has to write-down the value of an asset.
Pls solve all questions Problem 3 There are two types of banks, A and B. Each bank has 20 loans. Each loan of type A bank generates $500 with probability 0.9 and $200 with probability 0.1, and these cash flows are independently distributed. Each loan of the type B bank generates $600 with probability 0.4 and $200 with probability 0.6, and these cash flows are independently distributed, too. Suppose that the bank XYZ is type A. However, the investors believe that XYZ is type A with probability 0.3 and type B with probability 0.7. Ignore investors’ opportunity cost of investment (or assume that that the risk-free interest rate is 0%.) The investors are risk neutral. Consider the following securitization options for the bank XYZ. a. Suppose XYZ wants to securitize the portfolio of loans as a single security without communication. What is the market price of the security issued by XYZ? What is the net payoff to XYZ generated by this securitization? b. Suppose XYZ wants to securitize…
27.Which of the following statements are true?Statement I. Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds. Even investors who focus on long-term securities tend to hold some money market securities because this enables them to maintain liquidity. Statement II. Financial institutions manage their liquidity by participating in money markets. They may issue money market securities when they experience cash shortages and need to boost liquidity. They can also sell holdings of money market securities to obtain cash.Statement III. The value of a money market security represents the future value of the present cash flows generated by that security. Since money market securities represent debt, their expected cash flows are typically known.Statement IV. The pricing of money market securities changes in response to a shift in the required rate of return by investors. The…
Banks improves the liquidity of the bank by a. Purchasing more assets of the bank b. Increasing the profit rates on saving accounts c. Generating additional income from investment d. By reducing the interest rates on loan
Match the correct type of bank risk with the appropriate associated statement. 1.The possibility that a borrower could make late, reduced, or no payments on their loans. 2.Bank management may make poor strategic decisions that result in lower profits for the bank. 3.Hackers could break into bank customer accounts. 4.Inability to access capital markets and higher borrowing costs could hurt the bank's ability for funding opportunities. 5.Changes in the yield curve could increase short-term rates and/or decrease long-term rates, resulting in a lower net interest margin for the bank. 6.General economic conditions can affect banks in the U.S. Liquidity Risk 7.Differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities could put the bank's earnings at risk. Credit Risk Business Operations Risk Market risk Interstate Rate Risk Liquidity Risk

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