In optimal liquidity management decisions, there is a trade off between __________ and __________.
A) long-term liquidity; short-term liquidity
B) primary reserves; secondary reserves
C) the cost of maintaining liquidity; the cost of insufficient liquidity
D) price risk; interest rate risk

Question

Quizplus · Accepted Answer

The trade-off in optimal liquidity management decisions is between the cost of maintaining liquidity (holding cash or liquid assets, which might yield lower returns) and the cost of insufficient liquidity (potential inability to meet short-term obligations, leading to higher borrowing costs or financial distress).

In Optimal Liquidity Management Decisions, There Is a Trade Off