A disadvantage of using stored liquidity management to manage a FI's liquidity risk is
A)the resulting shrinkage of the FI's balance sheet.
B)the high cost of purchased liabilities.
C)the accessibility of international money markets.
D)tax considerations.

Question

Quizplus · Accepted Answer

Using stored liquidity management involves holding liquid assets and maintaining a buffer of excess reserves. This can lead to a shrinkage of the FI's balance sheet as these assets may not earn the same returns as other investments. This can have a negative impact on profitability and efficiency ratios, such as the return on assets or return on equity.

A Disadvantage of Using Stored Liquidity Management to Manage a FI's