FIs Are Particularly Vulnerable to Sudden and Unexpected Demand for Funds.Liquidity

question 40

Multiple Choice

FIs are particularly vulnerable to sudden and unexpected demand for funds.Liquidity regulations are imposed for all of the following reasons, except to:

• A)ensure that authorised DIs have sufficient liquidity
• B)prevent liquidity problems and possible contagion effects that may spread to other FIs
• C)increase liquidity for prudential management
• D)ensure that authorised DIs have sufficient capital

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Definitions:

Initial Endowment

The initial quantity of goods, services, and assets that an individual, organization, or economy possesses.

Pareto Optimal

An allocation of resources from which it is impossible to reallocate without making at least one individual worse off.

Utility Function

A mathematical representation that captures the level of satisfaction or happiness that consumers derive from consuming goods and services.

Initial Endowment

The original distribution of resources, wealth, or abilities that individuals or groups possess in an economic model.