Reference no: EM132207874
Liquidity Management Assignment -
Q1. (a) Define: bank liquidity risk, a liquid market, a liquid asset.
(b) What cash flows would a bank need to predict in order to estimate its liquidity needs for a specific future period of time?
Q2. Distinguish between asset liquidity and liability liquidity.
Q3. Discuss the risk return trade-off in the context of liquidity risk.
Q4. How might a bank assess its liquidity position?
Q5. Explain the operation of a bank's exchange settlement account.
Q6. Distinguish between deferred net settlement (DNS) and real time gross settlement (RTGS). How might the introduction of RTGS affect bank liquidity management?
Q7. In the context of bank management, explain the difference between capital risk and liquidity risk.
Q8. Under APS210 Liquidity (see Australian Prudential Regulation Authority website) some Australian banks may be required to hold a minimum holding of liquid assets equal to 9% of liabilities.
Which type of bank is subject to this requirement and which type of bank is not subject to this requirement?
Q9. Explain the Liquidity Coverage Ratio and the Net Stable Funding Ratio. Refer to the Draft APS210 Liquidity standard dated November 2011.
Q10. Lange et al. (2013): AllStar Bank has the following balance sheet (in millions):
|
Assets
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Liabilities and equity
|
|
Cash
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$30
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Deposits
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$110
|
|
Loans
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90
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Borrowed funds
|
40
|
|
Securities
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50
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Equity
|
20
|
|
Total assets
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$170
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Total liabilities and equity
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$170
|
AllStar Bank's largest customer decides to exercise a $15 million loan commitment. How will the new balance sheet appear if AllStar uses the following liquidity risk strategies?
(a) Stored liquidity management
(b) Purchased liquidity management
Q11. A DI has the following assets in its portfolio: $20 million in cash reserves with the Reserve Bank, $20 million in T-notes and $50 million in mortgage loans. If the assets need to be liquidated at short notice, the DI will receive only 99 per cent of the fair market value of the T-notes and 90 per cent of the fair market value of the mortgage loans. Estimate the liquidity index for these securities using the above information.
Q12. Plainbank has $10 million in cash and equivalents, $30 million in loans, and $15 million 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?