4 - Liquidity and Treasury Risk Measurement & Management Flashcards
Explain and calculate liquidity trading risk via cost of liquidation and liquidity-adjusted VaR (LVaR).
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Identify liquidity funding risk, funding sources, and lessons learned from real cases: Northern Rock, Ashanti Goldfields, and Metallgesellschaft.
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Evaluate Basel III liquidity risk ratios and BIS principles for sound liquidity risk management.
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Explain liquidity black holes and Identify the causes of positive feedback trading.
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Explain and calculate liquidity trading risk via cost of liquidation and liquidity-adjusted VaR (LVaR).
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Identify liquidity funding risk, funding sources, and lessons learned from real cases: Northern Rock, Ashanti Goldfields, and Metallgesellschaft.
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Evaluate Basel III liquidity risk ratios and BIS principles for sound liquidity risk management.
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Explain liquidity black holes and Identify the causes of positive feedback trading.
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Evaluate the characteristics of sound Early Warning Indicators (EWI) measures.
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Identify EWI guidelines from banking regulators and supervisors (OCC, BCBS, Federal Reserve).
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Discuss the applications of EWIs in the context of the liquidity risk management process.
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Compare various money market and capital market instruments and discuss their advantages and disadvantages.
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Identify and discuss various factors that affect the choice of investment securities by a bank.
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Apply investment maturity strategies and maturity management tools based on the yield curve and duration.
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Calculate a bank’s net liquidity position and explain factors that affect the supply and demand of liquidity at a bank.
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Compare strategies that a bank can use to meet demands for additional liquidity.
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Estimate a bank’s liquidity needs through three methods (sources and uses of funds, structure of funds, and liquidity indicators).
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Summarize the process taken by a US bank to calculate its legal reserves.
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Differentiate between factors that affect the choice among alternate sources of reserves.
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Identify and explain the uses and sources of intraday liquidity.
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Discuss the governance structure of intraday liquidity risk management.
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Differentiate between methods for tracking intraday flows and monitoring risk levels.
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Distinguish between deterministic and stochastic cash flows and provide examples of each.
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Describe and provide examples of liquidity options and explain the impact of liquidity options on a bank’s liquidity position and its liquidity management process.
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Describe and apply the concepts of liquidity risk, funding cost risk, liquidity generation capacity, expected liquidity, and cash flow at risk.
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Interpret the term structure of expected cash flows and cumulative cash flows.
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Discuss the impact of available asset transactions on cash flows and liquidity generation capacity.
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Compare and contrast the major lines of business in which dealer banks operate and the risk factors they face in each line of business.
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Identify situations that can cause a liquidity crisis at a dealer bank and explain responses that can mitigate these risks.
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Assess policy measures that can alleviate firm-specific and systemic risks related to large dealer banks.
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Compare and contrast the major lines of business in which dealer banks operate and the risk factors they face in each line of business.
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Identify situations that can cause a liquidity crisis at a dealer bank and explain responses that can mitigate these risks.
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Assess policy measures that can alleviate firm-specific and systemic risks related to large dealer banks.
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Identify best practices for the reporting of a bank’s liquidity position.
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Compare and Interpret different types of liquidity risk reports.
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Explain the process of reporting a liquidity stress test and Interpret a liquidity stress test report.
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Discuss the relationship between contingency funding planning and liquidity stress testing.
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Evaluate the key design considerations of a sound contingency funding plan.
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Assess the key components of a contingency funding plan (governance and oversight, scenarios and liquidity gap analysis, contingent actions, monitoring and escalation, and data and reporting).
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Differentiate between the various transaction and non-transaction deposit types.
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Compare the different methods used to determine the pricing of deposits and calculate the price of a deposit account using cost-plus, marginal cost, and conditional pricing formulas.
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Explain challenges faced by banks that offer deposit accounts, including deposit insurance, disclosures, overdraft protection, and basic (lifeline) banking.
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Distinguish between the various sources of non-deposit liabilities at a bank.
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Describe and calculate the available funds gap.
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Discuss factors affecting the choice of non-deposit funding sources.
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Calculate overall cost of funds using both the historical average cost approach and the pooled-funds approach.
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Describe the mechanics of repurchase agreements (repos) and calculate the settlement for a repo transaction.
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Discuss common motivations for entering into repos, including their use in cash management and liquidity management.
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Discuss how counterparty risk and liquidity risk can arise through the use of repo transactions.
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Assess the role of repo transactions in the collapses of Lehman Brothers and Bear Stearns during the 2007-2009 financial crisis.
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Compare the use of general and special collateral in repo transactions.
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Identify the characteristics of special spreads and explain the typical behavior of US Treasury special spreads over an auction cycle.
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Calculate the financing advantage of a bond trading special when used in a repo transaction.
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Discuss the process of liquidity transfer pricing (LTP) and identify best practices for the governance and implementation of an LTP process.
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Discuss challenges that may arise for banks during the implementation of LTP.
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Compare the various approaches to liquidity transfer pricing (zero cost, average cost, and matched-maturity marginal cost).
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Describe the contingent liquidity risk pricing process and calculate the cost of contingent liquidity risk.
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Identify the causes of the US dollar shortage during the financial crisis of 2007-2009.
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Evaluate the importance of assessing maturity/currency mismatch across the balance sheets of consolidated entities.
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Discuss how central bank swap agreements overcame challenges commonly associated with international lenders of last resort.
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Differentiate between the mechanics of foreign exchange (FX) swaps and cross-currency swaps.
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Identify key factors that affect the cross-currency swap basis.
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Assess the causes of covered interest rate parity violations after the financial crisis of 2007-2009.
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Discuss how asset-liability management strategies can help a bank hedge against interest rate risk.
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Describe interest-sensitive gap management and apply this strategy to maximize a bank’s net interest margin.
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Describe duration gap management and apply this strategy to protect a bank’s net worth.
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Discuss the limitations of interest-sensitive gap management and duration gap management.
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Evaluate the characteristics of illiquid markets.
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Examine the relationship between market imperfections and illiquidity.
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Assess the impact of biases on reported returns for illiquid assets.
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Explain the unsmoothing of returns and its properties.
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Compare illiquidity risk premiums across and within asset categories.
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Evaluate portfolio choice decisions on the inclusion of illiquid assets.
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