Liability management versus Stored Liquidity management poses a risk/return tradeoff with liquid assets having a low return but less risk and liability management having more risk, but allowing a financial institution to hold fewer low yielding liquid assets.

Question

Quizplus · Accepted Answer

This statement is true. Financial institutions need to balance their need for liquidity with their need for higher returns, and liability management involves taking on more risk but potentially earning higher returns, while storing liquid assets has lower risk but also lower returns.

Liability Management Versus Stored Liquidity Management Poses a Risk/return Tradeoff