Please answer the following questions correctly. Thank you 1. When a bank relies

Question

Please answer the following questions correctly. Thank you

1. When a bank relies on a policy of "purchased liquidity," it will generally be using more expensive funds.

Select one:

True

False

2. 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

3. 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

Explanation / Answer

1. True

(Because market normally requires paying market interest rates that are above those rates it had been paying on low interest deposits)

2. c. Purchased Liquidity

Purchasing funding involves going into market and paying exisitng rate of interest for non deposit sources

3. a. increases; increases

RSA stands for "rate sensitive assets" and RSL stands for "rate sensitive liabilities". Higher spread means bigger difference between interest rates earned and rates paid

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects