Which of the following would be an example of liquidity risk?
A)A bank teller manages to steal $250,000 over a period of several months.
B)An out-of-date computer system causes the bank to lose $750,000.
C)A bank is forced to sell $1,000,000 in loans,at a loss,in order to meet the needs of depositors.
D)A $500,000 that loan the bank has made has been deemed uncollectible.
E)None of the examples are of liquidity risk.

Question

Quizplus · Accepted Answer

Liquidity risk refers to the risk of a bank not having enough cash or liquid assets on hand to meet depositors' or creditors' demands for withdrawals or payments. In option C, the bank is forced to sell loans in order to meet the needs of depositors, which shows a lack of liquidity and is an example of liquidity risk. The other options are examples of other types of risk such as fraud risk (A), operational risk (B), credit risk (D), but not liquidity risk.

Which of the Following Would Be an Example of Liquidity