How does purchased liquidity management affect profitability?
A)By its impact on the interest rate sensitivity of assets.
B)By its impact on the interest rate sensitivity of liabilities.
C)By determining the default risk of investment securities.
D)By its impact on the cost of purchased funds.

Question

Quizplus · Accepted Answer

Purchased liquidity management typically involves borrowing funds from outside sources, which comes at a cost in the form of interest payments. Therefore, the impact on profitability is primarily related to the cost of the purchased funds. By carefully managing the cost of these funds, a company can ensure that the benefit of the additional liquidity they provide outweighs the associated expenses. The other factors listed may also be important when evaluating liquidity management strategies, but they are not directly related to how purchased liquidity management affects profitability.

How Does Purchased Liquidity Management Affect Profitability