Question

An individual opens a checking account at a bank, which then pools the deposit with others...

An individual opens a checking account at a bank, which then pools the deposit with others and creates a four-year car loan. For the depositor, this “asset transformation” affects

a.

maturity
b.

liquidity
c.

size
d.

price risk
e.

All of the above.
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Answer #1

It will affect the liquidity of the depositor because he has created a 4 year loan and he has kind of lock in his deposits so he can face the liquidity crunch as he won't be left with those deposits to use.

Since the amount is is already locked, the depositor will be facing with liquidity crunch.

This is not maturity or price risk for size related risk as it is not related to any kind of specification about change in interest rate or change in price or change in the size of the loan.

So correct option would be option (B) Liquidity

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