FINA 3317 - Chapter 22 | Questions with 100% Verified Answers
| Latest Update 2026/2027
Question: First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount (million $) Rate of
Return Amount (million $) Cost Rate Cash $ 10 0.00% Core deposits $ 80 4.00% Securities 30 5.50%
Borrowings 10 7.00% Loans 60 9.00% Equity 10 Total $ 100 Total $ 100 If FNBNA is expecting a $10 million net
deposit drain and the securities liquidity index is 0.97, by how much will pretax net income change if the drain
is funded entirely through securities sales?
Answer: −$476,289
Question: First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount (million $) Rate of
Return Amount (million $) Cost Rate Cash $ 10 0.00% Core deposits $ 80 4.00% Securities 30 5.50%
Borrowings 10 7.00% Loans 60 9.00% Equity 10 Total $ 100 Total $ 100 If FNBNA is expecting a $15 million net
deposit drain and the securities liquidity index is 0.98, how many securities would have to be liquidated if the
bank used only its securities to fund the expected deposit drain?
Answer: $15,306,122
Question: First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount (million $) Rate of
Return Amount (million $) Cost Rate Cash $ 10 0.00% Core deposits $ 80 4.00% Securities 30 5.50%
Borrowings 10 7.00% Loans 60 9.00% Equity 10 Total $ 100 Total $ 100 If FNBNA is expecting a $20 million net
deposit drain and the bank wishes to fund the drain by borrowing more money, how much will pretax net
income change if the borrowing cost is the same as on its existing borrowed funds?
Answer: -$600,000
Question: Which one of the following situations creates the most liquidity risk?
Answer: Long-term assets funded by short-term liabilities
Question: Which of the following results in a net liquidity drain?
Answer: Reverse repurchase agreements increase $50; demand deposits decrease $50.
Question: A bank meets a deposit withdrawal with one of the following alternatives. Which one of the following
is an example of using stored liquidity to meet a deposit withdrawal?
Answer: Selling the bank's holdings of T-bills
Question: Second National Bank (SNB) (million $) Funds borrowed $ 6,500 Maximum amount SNB can still
borrow $ 8,500 Cash-type assets $ 3,700 Excess cash reserves 80 Federal Reserve borrowings 20 What are
Second National Bank's total sources of liquidity?
Answer: $12,280
Question: Second National Bank (SNB) (million $) Funds borrowed $ 6,500 Maximum amount SNB can still
borrow $ 8,500 Cash-type assets $ 3,700 Excess cash reserves 80 Federal Reserve borrowings 20 What are
Second National Bank's total uses of liquidity?
Answer: $6,520
Question: Second National Bank (SNB) (million $) Funds borrowed $ 6,500 Maximum amount SNB can still
borrow $ 8,500 Cash-type assets $ 3,700 Excess cash reserves 80 Federal Reserve borrowings 20 What is
Second National Bank's total net liquidity?
Answer: $5,760
, Question: If a bank relies solely on purchased liquidity, the bank will likely:
Answer: be required to borrow money at short notice.
Question: Which one of the following is a source of liquidity risk for a bank?
Answer: A natural disaster in the bank's community
Question: Bank A has a loan-to-deposit ratio of 110 percent, core deposits equal 55 percent of total assets, and
borrowed funds are 25 percent of assets. Bank B has a loan-to-deposit ratio of 80 percent. Core deposits are 65
percent of assets and borrowed funds are 5 percent of assets. Which bank has more liquidity risk? All else held
constant, which bank will probably be more profitable when interest rates are low?
Answer: Bank A; Bank A
Question: Core deposits include all but which of the following?
Answer: Negotiable CDs
Question: BIS' Basel Committee on Banking Supervision provides regulatory standards for liquidity risk
supervision. Which of the following are among the new ratios required to be maintained by large DIs? I.
Liquidity coverage ratio II. Net stable funds ratio III. Financing gap over total asset ratio IV. Core deposits over
financing gap ratio
Answer: I and II only
Question: A financial intermediary has two assets in its investment portfolio. It has 35 percent of its security
portfolio invested in one-month Treasury bills and 65 percent in real estate loans. If it liquidated the bills today,
the bank would receive $98 per hundred of face value. If the real estate loans were sold today, they would be
worth $85 per $100 of face value. In one month, the real estate loans could be liquidated at $94 per $100 of
face value. What is the intermediary's one-month liquidity index?
Answer: 0.93
Question: When calculating the liquidity index, the larger the discount from fair value, the ______________ the
liquidity index; and the _________________ the liquidity risk the FI faces.
Answer: smaller; greater
Question: An increasingly positive financing gap can indicate ________________ liquidity risk because it may
indicate _______________ deposits and/or rising loan commitments.
Answer: increasing; decreasing
Question: Insurance industry guarantee funds do not eliminate runs on insurers because: I. the funds are not
backed by the federal government. II. the funds lack permanent reserves to back policies. III. the size of the
required contributions differs widely from state to state.
Answer: I, II, and III
Question: A married couple each has an IRA and deposits at a bank. The couple also has one child. If they had
the money, what is the total amount of their accounts that could be insured at one bank?
Answer: $1,500,000
Question: Which of the following can create liquidity risk for a life insurer? I. Unexpectedly high number of
policy surrenders II. Unexpectedly low number of new policies sold III. Unexpectedly high insurance claims filed
by policyholders
Answer: I, II, and III
| Latest Update 2026/2027
Question: First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount (million $) Rate of
Return Amount (million $) Cost Rate Cash $ 10 0.00% Core deposits $ 80 4.00% Securities 30 5.50%
Borrowings 10 7.00% Loans 60 9.00% Equity 10 Total $ 100 Total $ 100 If FNBNA is expecting a $10 million net
deposit drain and the securities liquidity index is 0.97, by how much will pretax net income change if the drain
is funded entirely through securities sales?
Answer: −$476,289
Question: First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount (million $) Rate of
Return Amount (million $) Cost Rate Cash $ 10 0.00% Core deposits $ 80 4.00% Securities 30 5.50%
Borrowings 10 7.00% Loans 60 9.00% Equity 10 Total $ 100 Total $ 100 If FNBNA is expecting a $15 million net
deposit drain and the securities liquidity index is 0.98, how many securities would have to be liquidated if the
bank used only its securities to fund the expected deposit drain?
Answer: $15,306,122
Question: First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount (million $) Rate of
Return Amount (million $) Cost Rate Cash $ 10 0.00% Core deposits $ 80 4.00% Securities 30 5.50%
Borrowings 10 7.00% Loans 60 9.00% Equity 10 Total $ 100 Total $ 100 If FNBNA is expecting a $20 million net
deposit drain and the bank wishes to fund the drain by borrowing more money, how much will pretax net
income change if the borrowing cost is the same as on its existing borrowed funds?
Answer: -$600,000
Question: Which one of the following situations creates the most liquidity risk?
Answer: Long-term assets funded by short-term liabilities
Question: Which of the following results in a net liquidity drain?
Answer: Reverse repurchase agreements increase $50; demand deposits decrease $50.
Question: A bank meets a deposit withdrawal with one of the following alternatives. Which one of the following
is an example of using stored liquidity to meet a deposit withdrawal?
Answer: Selling the bank's holdings of T-bills
Question: Second National Bank (SNB) (million $) Funds borrowed $ 6,500 Maximum amount SNB can still
borrow $ 8,500 Cash-type assets $ 3,700 Excess cash reserves 80 Federal Reserve borrowings 20 What are
Second National Bank's total sources of liquidity?
Answer: $12,280
Question: Second National Bank (SNB) (million $) Funds borrowed $ 6,500 Maximum amount SNB can still
borrow $ 8,500 Cash-type assets $ 3,700 Excess cash reserves 80 Federal Reserve borrowings 20 What are
Second National Bank's total uses of liquidity?
Answer: $6,520
Question: Second National Bank (SNB) (million $) Funds borrowed $ 6,500 Maximum amount SNB can still
borrow $ 8,500 Cash-type assets $ 3,700 Excess cash reserves 80 Federal Reserve borrowings 20 What is
Second National Bank's total net liquidity?
Answer: $5,760
, Question: If a bank relies solely on purchased liquidity, the bank will likely:
Answer: be required to borrow money at short notice.
Question: Which one of the following is a source of liquidity risk for a bank?
Answer: A natural disaster in the bank's community
Question: Bank A has a loan-to-deposit ratio of 110 percent, core deposits equal 55 percent of total assets, and
borrowed funds are 25 percent of assets. Bank B has a loan-to-deposit ratio of 80 percent. Core deposits are 65
percent of assets and borrowed funds are 5 percent of assets. Which bank has more liquidity risk? All else held
constant, which bank will probably be more profitable when interest rates are low?
Answer: Bank A; Bank A
Question: Core deposits include all but which of the following?
Answer: Negotiable CDs
Question: BIS' Basel Committee on Banking Supervision provides regulatory standards for liquidity risk
supervision. Which of the following are among the new ratios required to be maintained by large DIs? I.
Liquidity coverage ratio II. Net stable funds ratio III. Financing gap over total asset ratio IV. Core deposits over
financing gap ratio
Answer: I and II only
Question: A financial intermediary has two assets in its investment portfolio. It has 35 percent of its security
portfolio invested in one-month Treasury bills and 65 percent in real estate loans. If it liquidated the bills today,
the bank would receive $98 per hundred of face value. If the real estate loans were sold today, they would be
worth $85 per $100 of face value. In one month, the real estate loans could be liquidated at $94 per $100 of
face value. What is the intermediary's one-month liquidity index?
Answer: 0.93
Question: When calculating the liquidity index, the larger the discount from fair value, the ______________ the
liquidity index; and the _________________ the liquidity risk the FI faces.
Answer: smaller; greater
Question: An increasingly positive financing gap can indicate ________________ liquidity risk because it may
indicate _______________ deposits and/or rising loan commitments.
Answer: increasing; decreasing
Question: Insurance industry guarantee funds do not eliminate runs on insurers because: I. the funds are not
backed by the federal government. II. the funds lack permanent reserves to back policies. III. the size of the
required contributions differs widely from state to state.
Answer: I, II, and III
Question: A married couple each has an IRA and deposits at a bank. The couple also has one child. If they had
the money, what is the total amount of their accounts that could be insured at one bank?
Answer: $1,500,000
Question: Which of the following can create liquidity risk for a life insurer? I. Unexpectedly high number of
policy surrenders II. Unexpectedly low number of new policies sold III. Unexpectedly high insurance claims filed
by policyholders
Answer: I, II, and III
