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5) Commercial banks may face liquidity risk because: A) they may have difficulty meeting short-term depositor's demands B) government borrowings are difficult to predict C) they do not have enough reserves to lend to customers D) they do not have access to the discount window 6) Banks may use repurchase agreements to: A) pay their federal tax liabilities B) underwrite consumer loans C) borrow funds from financial intermediaries for liquidity D) hedge against price fluctuations on long-term bonds 7) Derivative instruments are: A) financial assets whose rates of returns are derived from available market information B) computers which display real-time financial information C) financial assets such as bonds that derive their value from issuing entities such as a SPV D) financial assets which derive their value from underlying assets 8) What is the largest category of commercial bank assets? A) loans B) reserves C) securities D) foreign exchange 9) If the value of a bank loan declines due to default, what is the corresponding reduction in a bank's balance sheet? A) Borrowings are reduced by the amount of the decline in the value of the loan. B) Capital is reduced by the amount of the decline in the value of the loan. C) Deposits are reduced by the amount of the decline in the value of the loan. D) Reserves are reduced by the amount of the decline in the value of the loan. 10) Which of the following is NOT covered by federal deposit insurance? A) checking accounts B) CDs and time deposits C) savings accounts D) money market funds 11) The most important derivative instruments are: A) U.S. Treasury bonds B) convertible stocks C) futures, options, and swaps D) the VIX and other indices Page 27