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You are the bank's liquidity manager. What should you do if the RBA increased the cash...

You are the bank's liquidity manager. What should you do if the RBA increased the cash rate (overnight interbank borrowing) and why? Answer this question by filling in the blanks. Please use the suitable word provided in the round brackets.

The risk of illiquidity  (increased/decreased/did not change). The cost of illiquidity  (increased/decreased/did not change). Therefore it makes sense to  (increase/decrease/ maintain) the ESF buffer. As a result your bank will be willing to create  (more/less/the same) loans and deposits.

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When the interbank cash rate increases, the cost of borrowing increases. The risk of illiquidity increases.

Therefore it makes sense to increase the ESF buffer to make liquidity easier.

As a result bank will be willing to create more loans and deposits.

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