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    Question

    A bank needs liquidity for which of the following?

                          I.        Meeting deposit withdrawals                     II.        Fund loan demands                    III.        Increase profitability
    A Only I Correct Answer Incorrect Answer
    B II and III Correct Answer Incorrect Answer
    C I and II Correct Answer Incorrect Answer
    D I and III Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    Liquidity is ability to accommodate decrease in liability & / increase in assets. Banks need liquidity to fund loan demands & to meet deposit withdrawals. A Bank’s liquidity is determined by variability of loan demands and deposits.

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