F446 Exam With 100% Correct
Answers
Which FIs have high liquidity risk exposure? - CORRECT ANSWER✔✔-depository institutions
-loss of confidence in bank-to-bank lending during financial crisis resulted in more widespread
liquidity crisis
Which FIs have moderate liquidity risk exposure? - CORRECT ANSWER✔✔life insurance
companies
Which FIs have low liquidity risk exposure? - CORRECT ANSWER✔✔-mutual funds
-hedge funds
-pension funds
-property-casualty insurance compannies
What causes liability-side liquidity risk? - CORRECT ANSWER✔✔when depositors or
policyholders cash in claims
What causes asset-side liquidity risk? - CORRECT ANSWER✔✔-off-balance sheet loan
commitments
-too high % of assets tied up in fixed-rate securities
What are net deposit drains? - CORRECT ANSWER✔✔deposit withdrawals - deposit additions
What can impact net withdrawal patterns? - CORRECT ANSWER✔✔seasonality
, Why are net withdrawal patterns affected by seasonality? - CORRECT ANSWER✔✔-end of year
due to Christma
-summer due to vacations
How can a FI manage net deposit drains? - CORRECT ANSWER✔✔-purchased liquidity
management
-stored liquidity management
What is purchased liquidity management? - CORRECT ANSWER✔✔borrowed funds on liability
side of BS
What are sources of purchased liquidity management? - CORRECT ANSWER✔✔-federal funds
market and/or repurchase agreement markets
-brokered CDs and other debt
What are the downsides of purchased liquidity management? - CORRECT ANSWER✔✔-
borrowed funds likely at higher rates than interest paid on deposits (impacts NI)
-borrowed funds may have limited availability if there is any question of insolvency
-regulatory concerns bc getting funding from outside the community you are serving
What is stored liquidity management? - CORRECT ANSWER✔✔liquidate assets to meet liquidity
What are the downsides of stored liquidity management? - CORRECT ANSWER✔✔-contraction
of asset size
-requires holding excess low-rate assets
-opportunity cost of holding excessive cash or other liquid assets
Answers
Which FIs have high liquidity risk exposure? - CORRECT ANSWER✔✔-depository institutions
-loss of confidence in bank-to-bank lending during financial crisis resulted in more widespread
liquidity crisis
Which FIs have moderate liquidity risk exposure? - CORRECT ANSWER✔✔life insurance
companies
Which FIs have low liquidity risk exposure? - CORRECT ANSWER✔✔-mutual funds
-hedge funds
-pension funds
-property-casualty insurance compannies
What causes liability-side liquidity risk? - CORRECT ANSWER✔✔when depositors or
policyholders cash in claims
What causes asset-side liquidity risk? - CORRECT ANSWER✔✔-off-balance sheet loan
commitments
-too high % of assets tied up in fixed-rate securities
What are net deposit drains? - CORRECT ANSWER✔✔deposit withdrawals - deposit additions
What can impact net withdrawal patterns? - CORRECT ANSWER✔✔seasonality
, Why are net withdrawal patterns affected by seasonality? - CORRECT ANSWER✔✔-end of year
due to Christma
-summer due to vacations
How can a FI manage net deposit drains? - CORRECT ANSWER✔✔-purchased liquidity
management
-stored liquidity management
What is purchased liquidity management? - CORRECT ANSWER✔✔borrowed funds on liability
side of BS
What are sources of purchased liquidity management? - CORRECT ANSWER✔✔-federal funds
market and/or repurchase agreement markets
-brokered CDs and other debt
What are the downsides of purchased liquidity management? - CORRECT ANSWER✔✔-
borrowed funds likely at higher rates than interest paid on deposits (impacts NI)
-borrowed funds may have limited availability if there is any question of insolvency
-regulatory concerns bc getting funding from outside the community you are serving
What is stored liquidity management? - CORRECT ANSWER✔✔liquidate assets to meet liquidity
What are the downsides of stored liquidity management? - CORRECT ANSWER✔✔-contraction
of asset size
-requires holding excess low-rate assets
-opportunity cost of holding excessive cash or other liquid assets
