Select all that are true regarding liquidity risk for a bank. O Consumer trust in the bank ensures a flow of funds from customers, reducing this risk. O A reduced access to credit markets reduces the bank's liquidity risk. O Higher liquidity risk is a result of lower borrowing costs to the bank. O The flow of funds form the bank's clearing of payments reduces this risk. O This risk creates an opportunity cost which could result in a hole in the risk management strategy of the bank. O An increase in the bank's credit rating will help to reduce their liquidity risk.

Select all that are true regarding liquidity risk for a bank. O Consumer trust in the bank ensures a flow of funds from customers, reducing this risk. O A reduced access to credit markets reduces the bank's liquidity risk. O Higher liquidity risk is a result of lower borrowing costs to the bank. O The flow of funds form the bank's clearing of payments reduces this risk. O This risk creates an opportunity cost which could result in a hole in the risk management strategy of the bank. O An increase in the bank's credit rating will help to reduce their liquidity risk.

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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1- FinTech firms are facing increased regulatory oversight. A risk event at a FinTech firm can result in losses that are substantially more damaging than at traditional financial institutions. True False 2- Credit risk and interest rate risk cannot affect insolvency risk. True False
If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of a. costly state verification. b. free-riding. O c. moral hazard. O d. adverse selection.
Which of the following statements is correct? A. Investors appreciate illiquid assets in their portfolios as they can easily sell them off to cover margin calls. B. Liquid assets can quickly be converted into cash without changing prices too much. O C. Corporate bonds are among the most liquid financial assets as they trade at a very high frequency. D. Liquid assets tend to be cheaper as investors are not willing to pay for their liquidity benefits.
Why is liquidity risk inherent to the business of banking? How can a bank seek to minimize its liquidity risk?
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
Which of the following statements is/are true? Multiple statements may be true A bank borrowing from the central bank signals confidence to other market participants The risk of fire sale is decreasing in the underlying item's illiquidity Liquidity risk can be addressed using off-balance sheet items Liquidity risk can originate from off-balance sheet items
As a bank manager, you conclude that the bank has a capital shortfall and should decrease the equity multiplier (i.e., increase the capital ratio) to prevent bank failure. Which of the following is one of things you can do to manage capital adequacy of the bank? a.Acquiring more reserves through borrowing from fed funds loansb.Selling the bank's holding of mortgage-backed securities and using the proceeds to decrease liabilitiesc.Repurchasing shares of the bankd.Increasing dividend payout ratio to reduce retained earnings.
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
Distinguish between illiquidity and insolvency as it affects a bank and discuss the reasons why banks are vulnerable to these problems.
A bank that grants loans to firms in a many different lines of business: will increase its information cost and decrease its credit risk will increase both its information cost and its credit risk will decrease its information cost and decerase its credit risk will decrease its information costs and increase its credit risk
Financial intermedires play a crucial role in an economic crisis they are responbile for both causing The market to crash and then helping it recover from the crisis is this statement true?Discuss with an example
Interest rate risk is of concern to a firm's financial officer, because (Select the best choice below.) A. it is more difficult to issue securities when interest rates are low. B. changes in interest rates affect the expected return of financial instruments. C. federal government taxation increases as interest rates rise, reducing the cash available to the firm. D. inflationary periods may reduce the real earnings of the firm. E. B and D

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