QUESTION 4a

Explain the arguments for and against market-value accounting. In your answer ensure that you

clearly explain "real losses" and "paper losses" and the role of moral hazard in the application of

market value accounting. Use a simplified bank balance sheet to illustrate your response. How

would the impact of COVID-19 influence your answer?

QUESTION 4b

A financial institution has the following balance:

In 2022 a flood increased liquidity needs of a bank servicing the affected community as

depositors withdrew deposits to the value of $20 billion.

Would you recommend this bank rely more on asset liquidity or liability liquidity to meet these

additional requirements? Give reasons. Show how you would manage the bank's liquidity

position.