Testbank NHTM- CHAP 11

Liquid assets must have a reasonably stable price so that the market is deep enough to absorb the sale without a significant loss of value.

• True

• False

Asset liquidity management (or asset conversion) involves storing liquidity in assets, such as deposits and jumbo CDs.

• True

• False

Asset liquidity management (or asset conversion) involves storing liquidity in assets, such as cash and marketable securities.

• True

• False

Liquid assets generally have a stable price but are not necessarily reversible.

• True

• False

Asset conversion is considered to be a costless approach to liquidity management.

• True

• False

One principle of sound bank liquidity management is to be sure to sell first those assets with the least profit potential.

• True

• False

Borrowed liquidity (liability) management is less risky for a financial institution than is asset conversion.

• True

• False

A financial institution's liquidity gap represents the difference between its sources and uses of liquid funds.

• True

• False

A bank expects to lose its "hot money" liabilities, according to the textbook.

• True

• False

According to the customer relationship doctrine a bank should turn down any loan requests for which it does not have enough deposits on hand but should help its borrowing customer obtain funds from some other source (such as by issuing a letter of credit to backstop the customer's loan from another lender).

• True

• False