he assets side of the balance sheet liquidity risk can come from the abilityof a bank to sell/securitise assets to raise funding.• This is a market related liquidity risk as a banks’ ability to raise liquidity byselling/ securitising assets depends to a large extent on the state of themarket it is trying to sell/securitise into.• In times of financial stress it may not be possible to sell assets quickly orsecuritise them.• Before the financial crisis of 2007–09 many banks had come to rely uponregular securitisation of mortgage assets to fund to new business. In times offinancial stress it may not be possible to securitise, so banks that hadbecome dependent on securitisation (e.g. Northern Rock in the UK) foundthemselves with a severe illiquidity problem.(4) Liquidity risk3233

Which of the following is NOT a potential cause of liquidity risk for a bank? A.A decrease in the availability of short-term borrowed funds.B.An increase in requests by depositors to withdrawal large amounts of deposits.C.A decrease in the bank's stock price caused by market factors.D.An increase in requests to fund large amounts of loan commitments.E.A decrease in asset prices of securities held in the investment portfolio.

Which of the following statements is TRUE?A.Bank runs occur because customers know that banks will be forced to liquidate assets at fire-sale prices.B.Asset side liquidity risk arises from transactions that result in a transfer of cash to some other asset, such as the exercise of a loan.C.An expected net deposit drain on any given day means that deposit withdrawals are less than deposit inflows. D.Mutual funds tend to have more exposure to liquidity risk than banks. E.In terms of liquidity risk measurement, the financing gap is defined as rate sensitive assets minus rate sensitive liabilities.

As commercial banks move from their traditional banking activities of deposit taking and lending and shift more of their activities to trading, they are more subject to A.political risk.B.market risk.C.credit risk.D.sovereign risk.E.liquidity risk.

A business is balance-sheet solvent when it holds market liquidity assets, particularly against short term debt.Question 7Select one:TrueFalse

If liquidity requirements increase, what is likely to happen to this interest rate margin and bank risk?