18-64 Reliance on purchased or borrowed funds will largely eliminate the liquidity risk faced by a bank.

Question

Quizplus · Accepted Answer

Reliance on purchased or borrowed funds may mitigate some liquidity risk, but it also introduces its own set of risks such as the possibility of the lender or purchaser demanding repayment or withdrawing their funds, leaving the bank with a liquidity shortfall. Additionally, relying heavily on borrowed funds may negatively impact the bank's credit rating and can be costly in terms of interest payments. Therefore, it does not entirely eliminate liquidity risk faced by a bank.

18-64 Reliance on Purchased or Borrowed Funds Will Largely Eliminate