ndicate whether each statement is true or false. a) A naive hedge is the hedge of a cash asset on a direct dollar-for-dollar basis with a forward or futures contract. (…….) b) Liability side risk arises from transactions whereby a creditor, depositor, or other claim holder demands cash in exchange for the claim. (…….) c) To manage liquidity risk a Depository Institution can use purchased liquidity management or stored liquidity management. (…….) d) Stored liquidity management involves borrowing funds in the money/purchased funds market. (…….) Kindly answer all

How are derivatives valued on the balance sheet? How is the adjustment to fair value recorded differently for a cash flow hedge versus a fair value hedge? That is, how does the fair value adjustment of each type of hedge affect current period net income and the accounting equation? What are the three criteria that must be met for a derivative to be classified as a hedge?   Once entities decide to buy or sell derivatives to hedge economic risks, they then need to decide whether they want to use hedge accounting; it is an election, not a requirement, even when the derivatives are for the economic purpose of hedging. This election is reminiscent of inventory accounting. Just like when a company selects an inventory method, a company is not required to select the accounting method (LIFO, FIFO, weighted average, specific unit) that most closely corresponds with the physical movement of inventory, although they are free to do so. If entities decide to elect hedge accounting, the following…

a)define interest rate swaptions, and differentiate between payer swaptions and receiver swaptions.    b)define forward swaps.     c)define risk management.    d)discuss reasons for practicing risk management.    e)discuss how firms can benefit from risk management.

T F Marketable securities can be converted into cashin a matter of days.

Financial Risk Management  Differentiate between Credit Default Swap (CDS) and Total Return Swap (TRS).

Mutual bank managers recognize that their potential gains from taking higher risk are…….., while their potential losses are …….. Select one: a. minimal, bounded b. substantial, minimal c. bounded, substantial d. bounded, minimal e. substantial, bounded

1.What are the benefits and costs to an FI of holding large amounts of liquid assets? Why are Treasury securities considered good examples of liquid assets? 2. What are the primary methods that insurance companies can use to reduce their exposure to liquidity risk?

Risk mitigation tools used specifically by secured lenders are least likely to include detailed assessments of a borrower's: A) willingness to pay. B) collateral. C) loan guarantees. D) credit enhancements.

Exchange rate risk is irrelevant because investors can hedge exchange rate risk on their own. Comment on this preposition.

It is said that open market transactions involve the sale or purchase of securities by the BSP to withdraw or inject liquidity into the system. What is Securities?