GCE Economics 1990 Question 22

Question 22

Financial Institutions

The liquidity ratio of a commercial bank refers to the

  1. A.proportion of the bank's total assets which should be held in cash and liquid form
  2. B.total amount of cash for the bank's treasury
  3. C.total amount of cash for the bank in the central bank
  4. D.proportion of the bank's cash that should be on loan
  5. E.proportion of the bank's cash and assets that should be kept with other banks.
Show the answer and explanation

Answer: A (proportion of the bank's total assets which should be held in cash and liquid form)

Explanation

The liquidity ratio is the share of a bank's deposits/assets it must keep in cash and easily cashed assets.