Which intermediation function results in an FI's exposure to liquidity risk?
A)Information production.
B)Asset transformation.
C)Conduit for monetary policy.
D)Lender of last resort.
E)Brokering between funds deficit units and funds surplus units.

Question

Quizplus · Accepted Answer

Asset transformation involves borrowing short-term funds and lending long-term funds, which exposes FIs to liquidity risk if they are unable to roll over short-term borrowing in times of market stress.

Which Intermediation Function Results in an FI's Exposure to Liquidity