BFM B - Unit 29 - set 2 - Motivational Banker

1. What does liquidity refer to in the context of banks?

The ability to manage loans efficiently

Handling withdrawals and supporting loan requests

Maximizing asset investments

Managing customer deposits

Question 1 of 25

2. When does a bank possess adequate liquidity?

When it has a large number of assets

When it minimizes liabilities

When it can increase liabilities or convert assets at a reasonable cost

When it has limited loan demand

Question 2 of 25

3. What potential consequence might a bank face if it fails to meet its liquidity needs?

Increased asset investments

Favorable market conditions for restructuring

Restructuring or acquiring liabilities in unfavorable market conditions

Expansion of loan demand

Question 3 of 25

4. Why do banks require liquidity?

To maximize profits

To minimize loan requests

To handle withdrawals and support loan requests

To reduce the number of liabilities

Question 4 of 25

5. What is one of the key purposes of liquidity risk management in a bank?

Maximizing asset sales

Demonstrating safety to repay obligations

Minimizing loan commitments

Reducing market competition

Question 5 of 25

6. What do strong banks with sound balance sheets benefit from in terms of liquidity risk?

Access to higher-risk premiums

Difficulty in obtaining funds

Access to funds at lower risk premiums

Increased default risk premiums

Question 6 of 25

7. What factors contribute to determining the adequacy of a bank's liquidity position?

Historical funding requirements and current liabilities

Current liquidity position and future asset sales

Anticipated future funding needs and options for increasing funding

Sources of funds and present and planned capital position

Question 7 of 25

8. Why is analyzing present and anticipated asset quality essential in liquidity risk management?

To increase default risk premiums

To avoid unprofitable asset sales

To reduce sources of funds

To demonstrate market safety

Question 8 of 25

9. Which of the following factors might negatively impact a bank's liquidity?

Expanded business opportunities

An increase in non-performing assets

New tax initiatives

Acquisitions

Question 9 of 25

10. What might contribute to potential challenges in a bank's liquidity position?

Downgrading by rating agencies

Increased deposit concentrations

Expanded business opportunities

New tax initiatives

Question 10 of 25

11. How might a bank address immediate funding needs without altering its asset structure significantly?

Dispose of liquid assets

Increase short-term borrowings

Decrease holdings of less liquid assets

Increase liabilities of a term nature

Question 11 of 25

12. What action can a bank take to reinforce its long-term financial position while meeting funding requirements?

Dispose of liquid assets

Increase short-term borrowings

Increase liabilities of a term nature

Increase capital funds

Question 12 of 25

13. Which of the following is an example of an internally generated liquidity risk?

Geographic factors

Systemic risks

Loss of confidence

Instrument-specific factors

Question 13 of 25

14. What are examples of external liquidity risks?

Systemic risk

Instrument-specific factors

Loss of confidence

Geographic factors

Question 14 of 25

15. What category of liquidity risk relates primarily to how an institution is perceived in different markets?

Systemic risk

Instrument-specific factors

Internal liquidity risk

External liquidity risk

Question 15 of 25

16. Which of the following scenarios might contribute to Funding Risk in liquidity management?

Stable liabilities in domestic currency

Fraud leading to substantial loss

Systemic risk mitigation measures

Increase in confidence among depositors

Question 16 of 25

17. What is a contributing factor to Time Risk in liquidity management?

Severe deterioration in asset quality

Temporary problems in recovery

Managing liquidity efficiently

Borrowers defaulting on repayment terms

Question 17 of 25

18. When might Time Risk become a concern for a financial institution?

Severe deterioration in the asset quality

Standard assets turning into non-performing assets

Efficient management of liquidity

Time involved in profitable business initiatives

Question 18 of 25

19. What could lead to Call Risk in the context of contingent liabilities?

Conversion of non-fund based limits into fund-based

Swaps and options

Managing liquidity efficiently

Temporary problems in recovery

Question 19 of 25

20. How might Call Risk affect a bank's ability to conduct profitable initiatives?

Temporary problems in recovery

Managing liquidity efficiently

Conversion of non-fund based limits into fund-based

Inability to undertake profitable business initiatives when desirable

Question 20 of 25

21. Why is managing liquidity crucial for commercial banks?

To maximize profits

To prevent crises and meet obligations

To minimize loan requests

To increase asset investments

Question 21 of 25

22. What is a fundamental step in managing liquidity risk for banks?

Maximizing asset investments

Defining risk tolerance levels

Increasing liabilities

Minimizing asset quality

Question 22 of 25

23. What is a necessary action to effectively manage liquidity risk?

Increasing loan requests

Setting limits for liquidity risk

Decreasing asset investments

Redefining risk tolerance levels

Question 23 of 25

24. Which of the following is a step in managing liquidity risk in banks?

Acquiring liabilities without a defined limit

Measuring and managing liquidity risk

Avoiding the establishment of a risk management framework

Ignoring tolerance levels for liquidity risk

Question 24 of 25

25. What is a crucial aspect of sound liquidity risk management in banking?

Creating policies for maximizing profits

Establishing processes for measuring and controlling liquidity risk

Ignoring oversight from senior management

Avoiding communication of approved policies

Question 25 of 25

BFM B – Unit 29 – set 2

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