Banks can improve their liquidity position by restructuring their asset portfolio to contain fewer ____ and more ____.
A) excess reserves; Treasury bills
B) Treasury bonds; corporate bonds
C) loans; Treasury bills
D) none of the above

Question

Quizplus · Accepted Answer

By restructuring their asset portfolio to contain fewer loans and more Treasury bills, banks can improve their liquidity position as Treasury bills are highly liquid and can be easily converted to cash in case of emergency. Corporate bonds and Treasury bonds have lower liquidity and may not be able to provide immediate cash flow in times of need. Excess reserves are already highly liquid and do not contribute to improving the liquidity position.

Banks Can Improve Their Liquidity Position by Restructuring Their Asset