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Because transactions deposits can be withdrawn at any time, banks are exposed to        trading...

Because transactions deposits can be withdrawn at any time, banks are exposed to
      
trading risk
      
credit risk
      
liquidity risk
      
interest risk

Business   Economics   
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Answer #1

The answer is option c- liquidity risk

Banks and other depository institutions share liquidity risk as deposits and savings accounts of transactions can be withdrawn at any time. Therefore, banks must scramble to cover the deficit of funds when withdrawals substantially outweigh new deposits over a period of time. Bankers have solved this liquidity problem for years by keeping lots of government bonds on hand that could easily be sold for cash. Therefore, it is not surprising that a conventional indicator of bank liquidity is the ratio of reserves plus securities to total assets. This proportion has fallen by more than half since 1980, when banks find ways to reduce their liabilities

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