Homework Answers
1. Liquidity means the ability of the business to pay its short-term liabilities.
The more cash or cash equivalents the business has- the more liquid it is.
Unexpected demand for increase in the loan.
An unexpected increase in withdrawals by depositors.
Both of them depletes the business of cash. Hence increasing its
liquidity risk.
Answer: An unexpected demand for increase in the loan.
An unexpected increase in withdrawals by depositors.
2. Answer: A, C.
Raising cash by selling T-bill and commercial paper.
Raising cash by issuing commercial paper.
Both of them brings in cash to meet the business's short term liabilities. Hence improving businesses liquidity.
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