The Liquidity Component of the CAMELS Rating Refers to

question 43

Multiple Choice

The liquidity component of the CAMELS rating refers to

• A)regulators' concern about how a bank's earnings would change if economic conditions change.
• B)how well the bank's management would detect its own financial problems.
• C)a bank's sensitivity to financial market conditions.
• D)monitoring the type of loans that are given, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases.
• E)excessive borrowing by banks from outside sources, such as the discount window.

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Definitions:

Indirect Method

A method used in cash flow statements to adjust net income for transactions that do not involve cash, providing a view of cash flow from operating activities.

Direct Method

A cost allocation method that assigns service department costs directly to production departments without recognizing services provided between service departments.

Sales

Revenue generated from goods or services sold by a company.

Direct Method

A cost allocation method that assigns service department costs directly to production departments without considering services provided between service departments.