Question
A bank finds it difficult to repay the short term deposits on maturity because the funds of the bank are locked in ____
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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