Gerald Wilkens is planning to invest in the stock of Tallahassee State Bank.He is examining the ratios of cash assets and government securities to total assets and purchased funds to total assets.What type of risk is Gerald attempting to measure with these ratios?
A)Credit risk
B)Liquidity risk
C)Market risk
D)Interest rate risk
E)Operational risk

Question

Quizplus · Accepted Answer

Gerald is attempting to measure liquidity risk with these ratios. The cash assets and government securities to total assets ratio measures the bank's ability to quickly convert its assets into cash to cover any sudden demands for withdrawals by depositors. The purchased funds to total assets ratio measures the bank's reliance on borrowed funds, which can be a source of liquidity risk if those funds are not readily available when needed.

Gerald Wilkens Is Planning to Invest in the Stock of Tallahassee