One of the unique problems that banks face is:
A) they hold liquid assets to meet illiquid liabilities.
B) they hold illiquid assets to meet liquid liabilities.
C) they hold liquid assets to meet liquid liabilities.
D) both their assets and their liabilities are illiquid.

Question

Quizplus · Accepted Answer

Banks hold a significant portion of their assets in the form of loans, which are typically illiquid. However, their liabilities such as deposits need to be available as liquid funds. Hence, banks face a unique problem of holding illiquid assets to meet liquid liabilities which can create liquidity risk.

One of the Unique Problems That Banks Face Is