In Managing Its Liabilities to Deal with Liquidity Problems,banks Trade

question 123

Multiple Choice

In managing its liabilities to deal with liquidity problems,banks trade off

• A) credit risk against interest rate risk.
• B) adverse selection against moral hazard.
• C) the need for available funds to meet deposit outflows against the desire for greater profit.
• D) present tax liabilities against future tax liabilities.

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Definitions:

Estimated Useful Life

The expected time period during which an asset is likely to be functional and economically useful.

Internal Rate of Return

A financial metric used to evaluate the profitability of an investment, representing the discount rate that makes the net present value of all cash flows equal to zero.

Net Present Value

The variance between the current value of cash coming in and the current value of cash going out over a time span.

Discount Rate

The interest rate used in determining the present value of future cash flows or in evaluating the attractiveness of an investment.