Which of the following statements is correct?
A)Demand for liquidity and sources of liquidity for a bank are generally equal to each other.
B)Most liquidity problems in the banking system arise from outside a bank.
C)Liquidity problems for a bank are made easier because most of their liabilities are not subject to immediate repayment.
D)Liquidity management is easy for a bank because a bank that is very liquid is also very profitable.
E)All of the options are correct.

Question

Quizplus · Accepted Answer

Liquidity problems in the banking system are often caused by external factors such as market disruptions, sudden changes in interest rates, or economic recessions. Banks depend on the availability of short-term funding from money markets or interbank lending to meet their obligations, and a disruption in these markets can lead to liquidity problems. Therefore, option B is correct. Option A is incorrect because the demand for liquidity may exceed the sources of liquidity, especially during a financial crisis. Option C is incorrect because some liabilities, such as demand deposits, are subject to immediate repayment. Option D is incorrect because a bank that is very liquid may not necessarily be very profitable since holding excess liquidity can lower its profitability.

Which of the Following Statements Is Correct