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6. The PMK bank has 2 assets. Asset A is liquid. It constitutes 35% of the total assets and it can be sold at 98% of its fair value even under distress conditions. Asset B is illiquid. It constitutes 65% of the total assets and it can be sold for only 85% of its fair value under distress conditions. The asset liquidity index for the bank is: a. 35, because the share of the liquid asset A in total assets is 35%. b. Below but very close to 90% c. 98, because the liquid asset can be sold at 98% of its fair value. d. More than 1 because it can issue large CDs. e. Cannot be determined because the information provided in insufficient. 7. Which of the following is False? a. Bank expenses can be reduced by improving the technical and allocative efficiency of the bank. b. Bank interest expenses can be reduced by obtaining access to lower cost sources of funds in other states. c. Bank interest income can be increased by extending more loans without lowering the loan rate. d. Bank expenses can be reduced by replacing expensive labor by ATMs. e. Bank interest expenses can be reduced by innovating new interest earning products and charging fees for these products. 8. Which of the following is true about methods of liquidity management? a. An advantage of using liability management is the low cost of funds b. An advantage of using asset management is the resulting shrinkage of the FI's balance sheet when deposits run off. b. An advantage of using asset management is guaranteed access to international money and capital markets to replenish lost deposits through fed funds borrowing. d. A disadvantage of using asset management is the resulting shrinkage of the FI's total assets on the balance sheet when deposits run off. e. None of the above is true. 9. Which of the following is not a source of operational risk of a bank? a b. c. d. e Machinery and equipment failures Customer lawsuits against the bank Technology bugs and viruses Employees fraud and embezzlement DEAR of its bond portfolio