Which type of financial intermediary is more highly exposed to liquidity risk?
A)property-casualty insurance companies
B)life insurance companies
C)mutual funds
D)depository institutions

Question

Quizplus · Accepted Answer

Depository institutions are more highly exposed to liquidity risk because they rely heavily on short-term deposits that can be withdrawn at any time by their customers. If a large number of depositors suddenly demand their funds, the institution may not have enough liquid assets to satisfy those demands and could face financial distress. Property-casualty insurance companies and life insurance companies typically have longer-term liabilities, which reduces their exposure to liquidity risk. Mutual funds may have liquidity risk if they hold investments that are difficult to sell quickly, but this risk can vary depending on the specific investments held by the fund.

Which Type of Financial Intermediary Is More Highly Exposed to Liquidity