Which of the Following Statements Is True

question 3

Multiple Choice

Which of the following statements is true?

• A)The liquidity index compares the liquidity of a single institution with the industry average and thus measures the liquidity risk of that particular institution.
• B)The liquidity index provides guidance for FIs on how much liquidity they should hold on a seasonal basis.
• C)The liquidity index measures the potential losses an FI could suffer if new market entrants take away market share from the existing institutions.
• D)The liquidity index measures the potential losses an FI could suffer from a sudden disposal of assets compared to the mount it would receive at a fair market value established under normal sales conditions.

---

Definitions:

Capital Account

A national account that shows the net change in asset ownership for a country. It includes foreign investments and loans.

Financial Account

A component of the balance of payments that records transactions of financial assets between residents of one country and the rest of the world.

Exchange Rate

The price of one currency in terms of another, allowing for the conversion of monetary values between countries.

Demand for Currency

The desire or need for holding cash as opposed to other forms of wealth or assets.