QUESTION 5
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.
Homework Answers
ANSWER
The risk of illiquidity increased because when RBA increases cash rate then in normal bank rate also increases then people save more and they do not spend
the cost of illiquidity decreased because when we put money in our bank we get interest om it and we do not need to pay for it.
therefore it make sense to maintain buffer stock to fulfill the demand supply chain.
as a result your bank will be willing to create more loans and deposits because there is increased cash rate and bank will earn more by advance loan.
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QUESTION 5 You are the bank's liquidity manager. What should you do if the RBA increased...
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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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