[Liquidity Risk and Liability/Liquidity Management}

(a) Explain two methods by which a depository institution can offset the liquidity effects of a net deposit drain of funds or the exercise of loan commitments. What are the operational benefits and costs of each method ?

(b) Suppose you are managing a liquid assets portfolio.Suppose you forecast interest rates to increase. Carefully explain which of the following techniques you think is the best approach to take:

(i) Ladder of maturity approach

(ii) Barbell approach

(iii) Riding-the-yield curve