Which of the following statements is TRUE?A.Bank runs occur because customers know that banks will be forced to liquidate assets at fire-sale prices.B.Asset side liquidity risk arises from transactions that result in a transfer of cash to some other asset, such as the exercise of a loan.C.An expected net deposit drain on any given day means that deposit withdrawals are less than deposit inflows. D.Mutual funds tend to have more exposure to liquidity risk than banks. E.In terms of liquidity risk measurement, the financing gap is defined as rate sensitive assets minus rate sensitive liabilities.

Which of the following is NOT a potential cause of liquidity risk for a bank? A.A decrease in the availability of short-term borrowed funds.B.An increase in requests by depositors to withdrawal large amounts of deposits.C.A decrease in the bank's stock price caused by market factors.D.An increase in requests to fund large amounts of loan commitments.E.A decrease in asset prices of securities held in the investment portfolio.

Which of the following statements is FALSE?A.When the FI uses its cash as the liquidity adjustment mechanism, both sides of its balance sheet contract.B.An FI's most liquid asset is cash. C.Mutual funds tend to have more exposure to liquidity risk than banks. D.Abnormally large and unexpected deposit withdrawals can occur because of concerns by depositors about a bank's solvency relative to other banks. E.A contagious run, or bank panic, differs from a run on a bank in that a contagious run involves loss of faith in the entire banking system as opposed to just one bank.

As commercial banks move from their traditional banking activities of deposit taking and lending and shift more of their activities to trading, they are more subject to A.political risk.B.market risk.C.credit risk.D.sovereign risk.E.liquidity risk.

he assets side of the balance sheet liquidity risk can come from the abilityof a bank to sell/securitise assets to raise funding.• This is a market related liquidity risk as a banks’ ability to raise liquidity byselling/ securitising assets depends to a large extent on the state of themarket it is trying to sell/securitise into.• In times of financial stress it may not be possible to sell assets quickly orsecuritise them.• Before the financial crisis of 2007–09 many banks had come to rely uponregular securitisation of mortgage assets to fund to new business. In times offinancial stress it may not be possible to securitise, so banks that hadbecome dependent on securitisation (e.g. Northern Rock in the UK) foundthemselves with a severe illiquidity problem.(4) Liquidity risk3233

Which of the following statements is/are true? Multiple statements may be trueGroup of answer choicesThe current ratio is an appropriate measure of bank liquidityAll else equal, a higher reliance on demand deposits increases banks' liquidity riskThe risk of fire sale is increasing in the underlying item's illiquidityBanks can increase liquidity buffers without impacting profitability