Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
To ensure that the bank can meet its short-term obligations
B
To maximize profit through high-risk investments
C
To minimize customer deposits
D
To reduce operational costs
Understanding the Answer
Let's break down why this is correct
Answer
The primary purpose of liquidity management in bank reserve management is to ensure that a bank has enough cash or easily convertible assets available to meet its short-term obligations. This means that banks need to be prepared to handle unexpected withdrawals by customers or other financial demands. For example, if many customers decide to withdraw their savings at the same time, the bank must have enough liquid assets to pay them without having to sell other assets at a loss. Proper liquidity management helps maintain trust in the bank and ensures smooth operations, allowing it to lend money and support the economy effectively. By carefully balancing their reserves, banks can avoid financial crises and remain stable.
Detailed Explanation
Liquidity management helps banks have enough cash on hand. Other options are incorrect because Some might think that banks should focus on making big profits with risky investments; It's a common mistake to think that banks want to have fewer customer deposits.
Key Concepts
liquidity management
Topic
Bank Reserve Management
Difficulty
easy level question
Cognitive Level
understand
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