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ECN-460 Midterm Questions And Answers Latest Update $14.99   Add to cart

Exam (elaborations)

ECN-460 Midterm Questions And Answers Latest Update

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ECN-460 Midterm Questions And Answers Latest Update

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  • October 30, 2024
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  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
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Solution 2024/2025
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ECN-460 Midterm Questions And Answers
Latest Update

What is asset transformation? ANS✔✔ selling liabilities with one set of
characteristics and using the proceeds to buy assets with a different set of
characteristics; borrowing short, lending long



List the six primary concerns of a bank manager. ANS✔✔ 1. Liquidity risk
management

2. Capital adequacy risk management

3. Asset management risk

4. Interest rate risk management

5. Liability management "Managed liability"

6. Credit risk management



Differentiate between required reserves and excess reserves. ANS✔✔
Required reserves - reserve ratio (RR) of deposits required by Federal
Reserve

Excess reserves - insurance against the costs associated with deposit
outflows



What are non-transaction deposits and why is it so important to banks?
ANS✔✔ depositors accounts (savings, money market, CDs) that have
restrictions on how and when funds can be withdrawn.

These provide a source of funding that can be used for long-term
investments. Less liquid

, Solution 2024/2025
Pepper



Differentiate between discount loans and fed funds loans ANS✔✔ Discount
loans - loan from Fed Reserve to bank

Fed funds loans - overnight loan from one bank to another



What are the primary products considered under the umbrella of asset-
managed liabilities (ALM)? ANS✔✔ Negotiable CDs, Increase in Fed Funds
borrowed, & Eurodollar borrowings



List the primary assets and liabilities on a bank's balance sheet ANS✔✔
Primary assets - cash, securities, loans, and property

Liabilities - deposits, borrowings, financial obligations



Assess balance sheet impacts of deposit outflows ANS✔✔ Balance the need
for liquidity against increased returns from less liquid assets without
incurring huge costs



What are the three major costs associated with deposit outflows when
excess reserves are insufficient? ANS✔✔ Foregone interest, opportunity
cost, increased marginal return of holding reserves



Calculate reserve balances given deposit required reserve ratios ANS✔✔
Reserve Requirement = Deposits * Reserve Ratio



How do capital levels prevent bank failures? ANS✔✔ Bank failure
prevention, Return on Equity (ROE), Regulatory Requirement

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