BFM B - Unit 29 - set 3 - Motivational Banker

1. What should a well-defined strategy for managing liquidity encompass?

Strategies only focused on profits

Approaches to enhancing liquidity and managing it across currencies and regions

Avoiding communication within the organization

Adherence to unapproved policies and procedures

Question 1 of 25

2. What is a critical requirement for effective implementation of a liquidity management strategy?

Restricting communication within the organization

Lack of adherence to approved policies and procedures

Board and senior management oversight

Absence of a structured liquidity management framework

Question 2 of 25

3. What entity should be established to execute an effective liquidity management strategy?

An isolated risk management team

Individual business units working independently

An Asset Liability Committee or a structured liquidity management framework

A decentralized approach without coordination

Question 3 of 25

4. What are the primary challenges posed by managing assets and liabilities in different currencies for liquidity management?

Limited management structure options

Lack of liquidity strategies for each currency

Managing international currency risks

Absence of disruptions in funding approaches

Question 4 of 25

5. What is a critical decision-making factor in the treatment of foreign currencies in banking?

Negotiating backup facilities for all foreign currencies

Choosing a centralized management structure exclusively

Determining the liquidity strategy for each currency

Ignoring disruptions in funding approaches

Question 5 of 25

6. How might banks manage disruptions in normal funding approaches for foreign currencies?

Relying solely on home currency sources

Not having a backup plan for disruptions

Converting funds into a single currency

Developing backup facilities for specific foreign currencies

Question 6 of 25

7. What purpose do decisions regarding foreign currency liquidity strategies serve for banks?

Maximizing profits from currency fluctuations

Eliminating international currency risks

Effectively managing international currency risks and maintaining liquidity

Restricting funding options for different currencies

Question 7 of 25

8. What could be an example of a limit set to manage liquidity risk concerning cash flow mismatches?

Limiting the loan to deposit ratio

Restricting the reliance on individual customers for funds

Setting cumulative net funding requirements over specific periods

Defining the minimum liquidity provision for operational sustenance

Question 8 of 25

9. What might be a factor considered when setting limits for liquid assets as a percentage of short-term liabilities?

Assessing anticipated funding needs

Imposing a limit on loan to capital ratio

Estimating average maturity of liabilities

Defining the minimum liquidity provision for operations

Question 9 of 25

10. How might supervisors contribute to setting limits for liquidity risk?

By not reviewing the limits set by the bank's management

By solely setting limits on loan to deposit ratio

By potentially setting limits on cumulative cash flow mismatches

By restricting limits on liquid assets

Question 10 of 25

11. What could be a flexible limit related to managing liquidity risk?

Setting a specific limit on loan to deposit ratio

Imposing rigid restrictions on funding from individual customers

Flexible limits on minimum/maximum average maturity of liabilities

Having a fixed limit on loan to capital ratio

Question 11 of 25

12. What are the two primary approaches for measuring and managing funding requirements?

Immediate and long-term approaches

Stock approach and flow approach

Internal and external approaches

Asset-based and liability-based approaches

Question 12 of 25

13. Which approach assesses the liquidity position based on the level of assets, liabilities, and off-balance sheet exposures on a specific date?

Stock approach

Flow approach

Immediate approach

Long-term approach

Question 13 of 25

14. What types of ratios are calculated under the stock approach to evaluate a bank's liquidity position?

Asset-based ratios only

Liability-based ratios only

Ratios considering assets, liabilities, and off-balance sheet exposures

Immediate liquidity ratios

Question 14 of 25

15. How does the flow approach differ from the stock approach in measuring liquidity?

Flow approach assesses liquidity at a particular date, while the stock approach considers a period.

Stock approach focuses solely on off-balance sheet exposures.

Flow approach doesn't consider liabilities.

Stock approach relies only on asset-based ratios.

Question 15 of 25

16. What do Core Deposits refer to?

Deposits from the bank's shareholders

Deposits from the public in regular situations

Deposits exclusively from corporate entities

Deposits from foreign institutions

Question 16 of 25

17. What are Net Loans?

Loans before provisions

Loans after provisions

Loans with high interest rates

Loans exclusively for corporate entities

Question 17 of 25

18. What does Liquid Assets encompass?

Only bank balances

Bank balances and loans after provisions

Bank balances, money at call & short notice, interbank deposits

Cash in hand and fixed deposits

Question 18 of 25

19. Which liabilities are typically part of Short-term Liabilities?

Fixed deposits and long-term bonds

Current accounts and savings bank deposits

Money market instruments only

Liabilities from foreign institutions

Question 19 of 25

20. What are the major dimensions of the Flow Approach for liquidity management in banks?

Measuring and managing structural liquidity gap

Managing foreign exchange rates

Measuring and managing net funding requirements, managing market access, and contingency planning

Monitoring government regulations on deposits

Question 20 of 25

21. What is the initial step for a bank to employ the Flow Approach for liquidity management?

Conducting stress tests on loans

Preparing a structural liquidity gap report

Assessing market fluctuations

Investing in long-term assets

Question 21 of 25

22. How is Net Funding Requirements calculated concerning residual maturities of assets or liabilities?

By considering the average maturities of assets only

By considering the difference between maturities of assets and liabilities

By solely focusing on short-term liabilities

By analyzing the maturities of liabilities only

Question 22 of 25

23. What does a negative cumulative Gap indicate in terms of arranging funds for the bank?

No need for additional funding

A requirement to source funds from different sources

A surplus of available funds

A need to increase long-term liabilities

Question 23 of 25

24. In calculating Net Funding Requirements, why is the residual maturity of assets or liabilities essential?

To identify current asset values

To understand the average maturity of liabilities

To assess the maturity mismatch between assets and liabilities

To determine short-term liabilities only

Question 24 of 25

25. What does the Maturity Ladder (ML) primarily aim to compare?

Current cash inflows and outflows

Future cash inflows with outflows over specified time periods

Past and present liabilities

Short-term liabilities only

Question 25 of 25

BFM B – Unit 29 – set 3

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