As a depositor shifts funds from current deposits to term deposits in a bank,generally the depositor's:

Question

Quizplus · Accepted Answer

When a depositor shifts funds from current deposits (which offer immediate access to funds) to term deposits (which have a maturity date and often offer a higher interest rate), the depositor's liquidity decreases (as they no longer have immediate access to the funds) but their interest income increases (as they are earning a higher interest rate on the term deposit). Credit risk is not directly affected by this shift in deposits. The choice of A is incorrect because liquidity and credit risk do not move in the same direction. Choice C is incorrect because the interest income does not decrease when moving from current deposits to term deposits. Choice D is also incorrect because the terms "implicit interest" and "explicit interest" are not commonly used in this context.

As a Depositor Shifts Funds from Current Deposits to Term