Which of the following statements is NOT true?
A)Stored liquidity management involves liquidation of assets.
B)Traditionally DIs have stored cash reserves at the Federal Reserve and in their vaults to overcome liquidity risk.
C)When the DI uses its cash as the liquidity adjustment mechanism, both sides of its balance sheet contract.
D)DIs hold cash reserves in excess of the minimum required to meet liquidity drains.
E)A DI sustains no cost under stored liquidity risk management.

Question

Quizplus · Accepted Answer

Stored liquidity management involves holding liquid assets, which incurs opportunity costs since these assets typically yield lower returns than less liquid investments. Therefore, statement E is not true as there are costs associated with stored liquidity risk management, contrary to the assertion that a DI sustains no cost.

Which of the Following Statements Is NOT True