Depository institution create liquidity when they
A) buy assets that are liquid.
B) borrow short and lend long.
C) have liabilities that are illiquid.
D) borrow long and lend short.

Question

Quizplus · Accepted Answer

Depository institutions create liquidity by borrowing funds on a short-term basis and lending them out on a longer-term basis. This process allows them to provide immediate cash to depositors while investing in longer-term loans that generate higher returns.

Depository Institution Create Liquidity When They