If a bank's management uses "the discipline of the financial marketplace" to gauge its liquidity position,one of the indicators of this market test of adequacy of a bank's liquidity position is:
A)the bank's return on equity capital.
B)the volume of bank stock outstanding.
C)the bank's return on assets.
D)the size of risk premiums on CDs the bank issues.
E)None of the options is correct.

Question

Quizplus · Accepted Answer

The size of risk premiums on CDs the bank issues is an indicator of the market's perception of the bank's liquidity position. If risk premiums are high, it suggests that the market views the bank as facing potential liquidity issues, while low premiums indicate the market perceives the bank as being in a strong liquidity position. Return on equity capital and return on assets are indicators of profitability, while the volume of bank stock outstanding is an indicator of demand for the bank's stock, but neither directly relate to liquidity.

If a Bank's Management Uses "The Discipline of the Financial