In Managing Its Liabilities to Deal with Liquidity Problems,banks Trade

question 123

Multiple Choice

In managing its liabilities to deal with liquidity problems,banks trade off

• A) credit risk against interest rate risk.
• B) adverse selection against moral hazard.
• C) the need for available funds to meet deposit outflows against the desire for greater profit.
• D) present tax liabilities against future tax liabilities.

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Definitions:

Retained Earnings

The portion of net income left over after dividends have been distributed to shareholders, reinvested into the company.

Board of Directors

A group of individuals elected by shareholders to oversee the management and make strategic decisions for a corporation.

Operating Cycle

The average period of time between the purchase of inventory and the receipt of cash from accounts receivable, representing the length of time a company's capital is tied up.

Inventory

Consists of the goods and materials a business holds for the purpose of resale or production.