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Questions and Answers
What is the purpose of liquidity management?
What is the purpose of liquidity management?
- Ensuring timely access to cash whenever needed (correct)
- Investing in high-risk assets
- Maximizing shareholder dividends
- Reducing operational costs
What does liquidity management refer to?
What does liquidity management refer to?
- Meeting short-term cash requirements without substantial losses (correct)
- Acquiring long-term investments
- Minimizing tax liabilities
- Maximizing long-term profitability
What causes deposit outflows in liquidity management?
What causes deposit outflows in liquidity management?
- Introduction of new financial products
- Expansion of bank branches
- Increase in interest rates
- Withdrawal of funds by depositors (correct)
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Study Notes
Liquidity Management
- Refers to the process of managing a bank's liquidity to ensure its ability to meet its short-term obligations and maintain financial stability
- Involves forecasting and managing cash inflows and outflows to maintain an adequate liquidity buffer
Deposit Outflows
- Occur when depositors withdraw their funds from the bank, reducing the bank's liquidity
- Can be caused by factors such as:
- Loss of depositor confidence
- Higher interest rates offered by competitors
- Economic downturns
- Regulatory changes
- Bank-specific issues (e.g. management problems, asset quality concerns)
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