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    Question

    The adequacy of a bank’s liquidity position is

    determined by which of the following factors?
    A Source of funds Correct Answer Incorrect Answer
    B Anticipated future funding Correct Answer Incorrect Answer
    C Present and future earnings capacity Correct Answer Incorrect Answer
    D All of the above Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    • A bank’s liquidity position is considered adequate when it can meet its short-term obligations and unexpected withdrawals without incurring significant losses. • The adequacy depends on multiple factors, including: o Source of funds → Stability and reliability of deposits and borrowings. o Anticipated future funding → Ability to raise funds in future through capital markets or borrowings. o Earnings capacity (present & future) → Strong profitability supports liquidity by generating internal cash flows. o Liability management → The bank’s efficiency in managing maturities and rollovers of obligations. Thus, the adequacy of liquidity depends on all the above factors collectively.

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