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JAMB Economics 1995 Question 40

Question 40

Financial Institutions

A bank is said to be distressed when it

  1. A.is unable to deal with the Central Bank
  2. B.has a low capital base
  3. C.has low level of deposits
  4. D.experiences serious liquidity crisis.
Show the answer and explanation

Answer: D (experiences serious liquidity crisis.)

Explanation

A distressed bank cannot meet customers' withdrawals and other obligations because it has run short of liquid funds.