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Liquidity risk- Financial Institutions Management by Lange 1) What are the two reasons why liquidity risk arises? How does liquidity risk arising from the liability

Liquidity risk- Financial Institutions Management by Lange

1) What are the two reasons why liquidity risk arises? How does liquidity risk arising from the liability side of the balance sheet differ from liquidity risk arising from the asset side of the balance sheet? What is meant by fire sale prices?

2) What are two ways in which a DI can offset the liquidity effects of a net deposit drain of funds? How do the two methods differ? What are the operational benefits and costs of each method?

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