Question 22
Financial InstitutionsThe liquidity ratio of a commercial bank refers to the
- A.proportion of the bank's total assets which should be held in cash and liquid form
- B.total amount of cash for the bank's treasury
- C.total amount of cash for the bank in the central bank
- D.proportion of the bank's cash that should be on loan
- 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.