I&RM Final Exam 2025 With 100%
Correct Answers
A DI with the following balance sheet (in millions) expects a net deposit drain of $15 million.
Assets Liabilities and Equity
Cash $10 Deposits $68
Loans 50 Equity 7
Securities 15
Total assets. $75 Total liabilities and equity $75
Show the DI's balance sheet if the following conditions occur:
a. The DI purchases liabilities to offset this expected drain.
b. The stored liquidity management method is used to meet the expected drain. - CORRECT
ANSWER✔✔a. If the DI purchases liabilities, then the new balance sheet is: Cash $10 Deposits
$53
Loans 50 Purchased liabilities 15
Securities 15 Equity 7
Total assets $75 Total liabilities and equity $75
b. If the DI liquidates assets to meet the deposit withdrawals, a possible balance sheet may be:
Loans $50 Deposits $53
Securities 10 Equity 7
Total assets $60 Total liabilities and equity $60
DIs will most likely use some combination of these two methods.
Plainbank has $10 million in cash and equivalents, $30 million in loans, and $15 in core deposits.
a. Calculate the financing gap
, b. What is the financing requirement?
c. How can the financing gap be used in the day-to-day liquidity management of the bank? -
CORRECT ANSWER✔✔a. Financing gap = Average loans - Average deposits = $30 million - $15
million = $15 million
b. Financing requirement = Financing gap + Liquid assets = $15 million + $10 million = $25 m
c. A rising financing gap on a daily basis over a period of time may indicate future liquidity
problems due to increased deposit withdrawals and/or increased exercise of loan
commitments. Sophisticated lenders in the money markets may be concerned about these
trends and they may react by imposing higher risk premiums for borrowed funds or stricter
credit limits on the amount of funds lent.
A DI has the following assets in its portfolio: $10 million in cash reserves with the Fed, $25
million in T-bills, and $65 million in mortgage loans. If the DI has to liquidate the assets today, it
will receive only $98 per $100 of face value of the T-bills and $90 per $100 of face value of the
mortgage loans. Liquidation at the end of one month (closer to maturity) will produce $100 per
$100 of face value of the T-bills and $97 per $100 of face value of the mortgage. Calculate the
one-month liquidity index for this DI using the preceding information. - CORRECT ANSWER✔✔I
= ($10m/$100m)(1.00/1.00) + ($25m/$100m)(0.98/1.00) + ($65m/$100m)(0.90/0.97) = 0.948
Central Bank has the following balance sheet (in millions of dollars).
Assets Liquidity Level. Liabilities and Equity Run off factor
Cash $ 15 Level 1 Stable retail deposits $190 3%
Deposits@the Fed: 30 Level 1 Less stable retail deposits 70 10
Treasury bonds: 145 Level 1 CDs maturing in 6 months. 100 0
QualifyingMarketSecurity 50 Level 1 Unsecured wholesale funding from:
GNMA bonds 60 Level 2A Stable small business deposits 125 5
Loans to AA- corporations 540 Level 2A Less stable small business deposits 100 10
Mortgages 285 Nonfinancial corporates 450 75
Premises 40 Equity 130
Total $1,165 Total $1,165
Correct Answers
A DI with the following balance sheet (in millions) expects a net deposit drain of $15 million.
Assets Liabilities and Equity
Cash $10 Deposits $68
Loans 50 Equity 7
Securities 15
Total assets. $75 Total liabilities and equity $75
Show the DI's balance sheet if the following conditions occur:
a. The DI purchases liabilities to offset this expected drain.
b. The stored liquidity management method is used to meet the expected drain. - CORRECT
ANSWER✔✔a. If the DI purchases liabilities, then the new balance sheet is: Cash $10 Deposits
$53
Loans 50 Purchased liabilities 15
Securities 15 Equity 7
Total assets $75 Total liabilities and equity $75
b. If the DI liquidates assets to meet the deposit withdrawals, a possible balance sheet may be:
Loans $50 Deposits $53
Securities 10 Equity 7
Total assets $60 Total liabilities and equity $60
DIs will most likely use some combination of these two methods.
Plainbank has $10 million in cash and equivalents, $30 million in loans, and $15 in core deposits.
a. Calculate the financing gap
, b. What is the financing requirement?
c. How can the financing gap be used in the day-to-day liquidity management of the bank? -
CORRECT ANSWER✔✔a. Financing gap = Average loans - Average deposits = $30 million - $15
million = $15 million
b. Financing requirement = Financing gap + Liquid assets = $15 million + $10 million = $25 m
c. A rising financing gap on a daily basis over a period of time may indicate future liquidity
problems due to increased deposit withdrawals and/or increased exercise of loan
commitments. Sophisticated lenders in the money markets may be concerned about these
trends and they may react by imposing higher risk premiums for borrowed funds or stricter
credit limits on the amount of funds lent.
A DI has the following assets in its portfolio: $10 million in cash reserves with the Fed, $25
million in T-bills, and $65 million in mortgage loans. If the DI has to liquidate the assets today, it
will receive only $98 per $100 of face value of the T-bills and $90 per $100 of face value of the
mortgage loans. Liquidation at the end of one month (closer to maturity) will produce $100 per
$100 of face value of the T-bills and $97 per $100 of face value of the mortgage. Calculate the
one-month liquidity index for this DI using the preceding information. - CORRECT ANSWER✔✔I
= ($10m/$100m)(1.00/1.00) + ($25m/$100m)(0.98/1.00) + ($65m/$100m)(0.90/0.97) = 0.948
Central Bank has the following balance sheet (in millions of dollars).
Assets Liquidity Level. Liabilities and Equity Run off factor
Cash $ 15 Level 1 Stable retail deposits $190 3%
Deposits@the Fed: 30 Level 1 Less stable retail deposits 70 10
Treasury bonds: 145 Level 1 CDs maturing in 6 months. 100 0
QualifyingMarketSecurity 50 Level 1 Unsecured wholesale funding from:
GNMA bonds 60 Level 2A Stable small business deposits 125 5
Loans to AA- corporations 540 Level 2A Less stable small business deposits 100 10
Mortgages 285 Nonfinancial corporates 450 75
Premises 40 Equity 130
Total $1,165 Total $1,165
