When Banks Use Stored Liquidity Management, They

question 40

Multiple Choice

When banks use stored liquidity management, they

• A)must pay interest on the funds that are stored.
• B)store the funds at the U.S.Treasury.
• C)necessarily increase the asset side of the balance sheet.
• D)may shrink the balance sheet if cash is used as the liquidity adjustment mechanism.
• E)threaten the capital position of the institution.

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Definitions:

Comparative Advantage

The capacity of a person, business, or nation to generate a product or service with a lesser opportunity cost compared to rivals.

Opportunity Costs

The price paid for not selecting the next most favorable option when deciding.

Constant Opportunity Costs

A scenario where the cost of forgoing the next best alternative remains the same regardless of the level of production.

Import Quota

A government-imposed limit on the quantity or value of goods that can be imported into a country, often used to protect domestic industries.