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    Question

    A bank finds it difficult to repay the short term

    deposits on maturity because the funds of the bank are locked in ____
    A Interest Rate risk Correct Answer Incorrect Answer
    B Liquidity risk Correct Answer Incorrect Answer
    C Operational risk Correct Answer Incorrect Answer
    D Market risk Correct Answer Incorrect Answer
    E Credit risk Correct Answer Incorrect Answer

    Solution

    Liquidity Risk arises when a bank is unable to meet a financial commitment . This may arise due to variety of reasons. The entity may not be able to raise resources at reasonable cost. This may also arise when a bank is not able to exit an investment due to non availability of counter party in the market resulting in impacting the liquidity of the bank in meeting its commitments.

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