Question

A bank needs liquidity for which of the following?

                      I.        Meeting deposit withdrawals

                    II.        Fund loan demands

                   III.        Increase profitability

A Only I Correct Answer Incorrect Answer
B II and III Correct Answer Incorrect Answer
C I and II Correct Answer Incorrect Answer
D I and III Correct Answer Incorrect Answer
E All of the above Correct Answer Incorrect Answer

Solution

Liquidity is ability to accommodate decrease in liability & / increase in assets. Banks need liquidity to fund loan demands & to meet deposit withdrawals. A Bank’s liquidity is determined by variability of loan demands and deposits.

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