Which of the following statements about depository institutions is false?
A)They create liquidity by borrowing long and lending short.
B)They keep reserves to meet cash withdrawals.
C)A credit union is an example of a depository institution.
D)They pool, and therefore reduce, risk.
E)They borrow at lower interest rates and lend at higher rates.

Question

Quizplus · Accepted Answer

Depository institutions borrow short-term (such as through deposits) and lend long-term (such as through loans), creating maturity transformation, not liquidity. Liquidity refers to the ability to convert assets into cash quickly.

Which of the Following Statements About Depository Institutions Is False