Question

Which of the following is most accurate regarding stored and purchased liquidity?

Select one:

a. Stored Liquidity is using interbank markets for short-term loans

b. Larger Financial Institutions(FIs) are more likely to use purchased liquidity than smaller FIs

c. Purchased liquidity involves liquidating cash stores and selling existing assets

d. When managers utilize stored liquidity to fund deposit drains, the size of the balance sheet is reduced and its composition is unchanged

Answer 1

Correct ans is option'A' :-When managers utilize stored liquidity to fund deposit drains, the size of the balance sheet is reduced and its composition is unchanged  

Purchase liquidity uses non core liabilities and borrowing funds to meet the liquidity risk and stored liquidity uses liquid assets since th size of the balance sheet is reduced. stored liquidity is not using inter markets for short term loans. purchased liquidity doesnot involves in liquidating cash stores abd selling existing assets