ch11 - ch11 Key 1. A(n) __________________ is an asset...

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Unformatted text preview: ch11 Key 1. A(n) __________________ is an asset which can be converted into cash easily, which has a relatively stable price and is reversible so that the seller can recover their original investment with little risk of loss. liquid asset Rose - Chapter 11 #1 2. When a financial institution sells assets to manage liquidity it faces _________________________. They lose the future earnings on those assets, they face transaction costs on those sales and the assets most easily sold often have the lowest return. opportunity costs Rose - Chapter 11 #2 3. _________________________ is when the financial institution borrows money in the money market to meet their liquidity needs. Purchased (borrowed) liquidity Rose - Chapter 11 #3 4. The _________________________ is the total difference between its sources and uses of funds. liquidity gap Rose - Chapter 11 #4 5. _________________________ are the deposits and other borrowings of the bank which are very interest sensitive or where the bank is sure they will be withdrawn during the current period. "Hot money" liabilities Rose - Chapter 11 #5 6. The _________________________ is the idea that management should make all good loans and count on its ability to borrow funds if it does not have the liquidity to meet its cash needs. customer relationship doctrine Rose - Chapter 11 #6 7. _________________________ are the assets the bank must by law hold behind its deposits. In the U.S. only vault cash and deposits held with the Federal Reserves can be used to meet these requirements. Legal reserves Rose - Chapter 11 #7 8. A(n) _________________________ is the account the bank must have at the Federal Reserve to cover any checks drawn against the bank. clearing balance Rose - Chapter 11 #8 9. A(n) _________________________ is a service developed by banks where the bank shifts money out of accounts with reserve requirements and into savings accounts overnight. sweeps account Rose - Chapter 11 #9 10. The _________________________ is a 14 day period stretching from a Thursday to a Wednesday. This is the period in which the bank has to keep their average daily level of required reserves for a particular computation period. reserve maintenance period Rose - Chapter 11 #10 11. _________________________ is the availability of cash in the amount needed at a reasonable cost. Liquidity Rose - Chapter 11 #11 12. Under a _________________________ strategy some of the expected demands for liquidity are stored in assets, while others are backstopped by arrangements for lines of credit from banks or other suppliers of funds. balanced liquidity management Rose - Chapter 11 #12 13. The oldest approach to meeting liquidity needs which relies on the sale of liquid assets to meet liquidity demands is called _________________________....
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ch11 - ch11 Key 1. A(n) __________________ is an asset...

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