Which of the following statements is true?
A)The stock of liquid assets held in an FI's balance sheet will depend on the FI's willingness to trade off liquidity against returns and on its ability to use purchased liquidity.
B)The stock of liquid assets held in an FI's balance sheet will depend on the FI's willingness to trade off liquidity against returns but not on its ability to use purchased liquidity.
C)The stock of liquid assets held in an FI's balance sheet will not depend on the FI's willingness to trade off liquidity against returns; it will depend, however, on its ability to use purchased liquidity.
D)The stock of liquid assets held in an FI's balance sheet will neither depend on the FI's willingness to trade off liquidity against returns, nor on its ability to use purchased liquidity.

Question

Quizplus · Accepted Answer

The stock of liquid assets held in an FI's balance sheet is influenced by the trade-off between liquidity and returns, as well as the ability of the FI to acquire purchased liquidity. FIs must balance the need for liquidity with the desire for increased returns through investing in less-liquid, higher-yield assets. The ability to purchase liquidity, such as through short-term market transactions, can also be a factor in determining the level of liquid assets on an FI's balance sheet. Therefore, statement A is the most accurate.

Which of the Following Statements Is True