Malz, Chapter 12: Liquidity and Leverage Practice Question set contains 14 pages covering the following learning objectives:
* Differentiate between sources of liquidity risk and describe specific challenges faced by different types of financial institutions in managing liquidity risk.
* Summarize the asset-liability management process at a fractional reserve bank, including the process of liquidity transformation.
* Compare transactions used in the collateral market and explain risks that can arise through collateral market transactions.
* Describe the relationship between leverage and a firm’s return profile (including the leverage effect), and distinguish the impact of different types of transactions on a firm’s leverage and balance sheet.
* Distinguish methods to measure and manage funding liquidity risk and transactions liquidity risk.
* Calculate the expected transactions cost and the spread risk factor for a transaction, and calculate the liquidity adjustment to VaR for a position to be liquidated over a number of trading days.
* Discuss interactions between different types of liquidity risk and explain how liquidity risk events can increase systemic risk.
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