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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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