Topic 5 RM Part 3

What is liquidity risk defined as?

• A risk to earnings and reputation

• A risk of market fluctuations

• A risk of operational failures

• A risk of credit default

Which committee typically manages liquidity risks in a bank?

• Risk Management Committee

• Asset-Liability Management Committee

• Compliance Committee

• Audit Committee

What does effective liquidity risk management help ensure?

• Reduction in operational costs

• Increased loan approvals

• Ability to meet cash flow obligations

• Higher interest rates

What is the primary role of banks as financial intermediaries?

• To manage government funds

• To invest in stocks

• To transform short-term deposits into long-term loans

• To provide insurance

What is a bank's net funding comprised of?

• Only its equity capital

• Existing liabilities and marketable assets

• Only its marketable assets

• Only its existing liabilities

What is a consequence of a bank being short of liquidity?

• Ability to lend more

• Higher interest rates for loans

• Increased customer trust

• Selling marketable assets

What does the Liquidity Coverage Ratio (LCR) aim to promote?

• Higher asset valuations

• Short-term liquidity risk resilience

• Long-term profitability

• Increased loan demand

What is a maturity mismatch?

• When a bank has too many short-term assets

• When a bank has no liabilities

• When there is an imbalance in assets and liabilities

• When assets and liabilities have the same maturity

What is the first step in liquidity management?

• Obtain financing from the Central Bank

• Sell less-liquid assets

• Construct a maturity ladder

• Increase capital

What is the Liquidity Gap?

• Total cash inflows of a bank

• Total cash outflows of a bank

• Difference between short-term and long-term loans

• Difference between total assets and total liabilities