What Does 'Constrained Optimisation' in the Context of Liquidity Management

question 38

Multiple Choice

What does 'constrained optimisation' in the context of liquidity management refer to?

• A)It refers to the case that any liquid asset holdings over and above the reserve requirements imposed by regulators need to be balanced by the same amount of short-term liabilities.
• B)It refers to the case that any increases in an FI's current liability holdings incur a decrease in the profitability of the FI's liquidity holdings.
• C)It refers to the case that any liquid asset reserve requirements imposed by regulators set a minimum bound on the level of liquid reserve assets in the balance sheet.
• D)It refers to the case that any liquid asset reserve requirements imposed by regulators need to be balanced by the same amount of short-term liabilities.

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