Please answer the following questions correctly. Thank you 1. When a bank deals
ID: 2598819 • Letter: P
Question
Please answer the following questions correctly. Thank you
1. When a bank deals with deposit "drainage" by buying more fed funds or entering the repurchase agreement market, we say the bank is using:
Select one:
a. long-term funding sources
b. core deposits
c. purchased liquidity
d. liquidation of assets
2. When the spread between interest rates on RSA and RSL ____________, the bank's net interest income would be expected to ____________.
Select one:
a. increases; increase
b. increases; decrease
c. decreses; increase
d. decreases; decrease
3. Refer to the following for Acme National Bank:
1-YEAR RATE-SENSITIVE ASSETS
$ 80,000,000
1-YEAR RATE-SENSITIVE LIABILITIES
$100,000,000
TOTAL ASSETS
$160,000,000
TOTAL LIABILTITIES
$145,000,000
What is Acme's one-year repricing gap?
Select one:
a. $80 million
b. $20 million
c. $15 million
d. -$15 million
e. -$20 million
1-YEAR RATE-SENSITIVE ASSETS
$ 80,000,000
1-YEAR RATE-SENSITIVE LIABILITIES
$100,000,000
TOTAL ASSETS
$160,000,000
TOTAL LIABILTITIES
$145,000,000
Explanation / Answer
1. Correct option is c; purchased liquidity
Explanation:
Liquidity can be purchased in financial markets, e g. Borrowed fund from other banks and other institutional investors
_ federal funds market in the U.S. And the repurchase agreement market.
'Purchased' funding involves entering the money market and paying the going rate of interest-for non-deposit sources