Exam (elaborations)
ECN-460 Midterm Questions And Answers Latest Update
- Course
- ECN 460
- Institution
- Arizona State University
ECN-460 Midterm Questions And Answers Latest Update
[Show more]
Content preview
Solution 2024/2025Pepper
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restrictions on how and when funds can be withdrawn.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
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Schoolflix. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $14.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
83225 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now
