chapter 18

Question 1

what is stored liquidity and types

Answer 1

liquidity from assets bank already owns; cash reserves

Question 2

what is purchased liquidity and types

Answer 2

liquidity from borrowing funds; loans

Question 3

how can we know how liquid a bank is

Answer 3

are they lending out their equity? putting it into bonds? NOT GOOD
bank needs to have cash on hand to avoid bank runs

Question 4

how to manage liability

Answer 4

demand deposits: liquidity risk (can pull out tmr)+cheap
GICs: no liqudity risk + costly

Question 5

what is the funding risk vs cost tradeoff

Answer 5

if bank cant get enough deposits it might not have enough to lend out

Question 6

what is funding risk and funding cost

Answer 6

funding risk: being denied loan
funding cost: how much you pay to borrow cash

Question 7

where do you go as last resort for liquidity problem

Answer 7

Bank of canada

Question 8

why is central bank important when it comes to liquidity

Answer 8

they set reserve requirement ratio to ensure bank maintains liqudity

Question 9

what is the liquidity index formula + what it measures

Answer 9

=(fire sale price of asset/book value of assets)
measures potential loss an FI could suffer from disposal of asset