1. The annual report for a top banking company states the following with respect to their Liquidity Risk Management policies:

The Company tests its liquidity position regularly and maintains contingency plans that reflect the types of loans it issues. The Company generally issues and holds commercial loans with initial maturities of one year or less. It also originates adjustable rate and fixed rate home mortgages, but insures that the fixed rate mortgages can be sold on the secondary market to government agencies and private investors. In addition the Company maintains a large portfolio of short-term government securities.

What liquidity management strategy does this statement correspond to? [5 pts]

1. Permeability theory
2. Asset management
3. Liability management
4. Balanced asset/liability management