(a) Explain the impacts on a depository institution's balance sheet when it uses stored and purchased liquidity management to offset :

1. the liquidity effects of a net deposit drain of fundsand
2. the exercise of loan commitments.

What are the operational benefits and costs of each method ?(1.5 marks)

(b) Suppose you forecast interest rates toincrease. Carefully explain the following techniques based on the interest rate forecast.

1. Ladder of maturity approach(1.5 mark)
2. Riding the yield curve(3 marks)

(c) Suppose you forecast interest rates todecrease. Carefully explain the following techniques based on the interest rate forecast.

1. Playing the yield curve(2 marks)
2. Barbell approach (2 marks)