Question

The capacity of the bank to give cash when the customer wants money is called

• A. Solvency
• B. Profitability
• C. Liquidity
• D. Capital Adequacy

Answer 1

Answer:

C. Liquidity

Liquidity:

• Liquidity means the capacity of the bank to give cash when the customer wants money.
• Banks are mainly intermediaries of short-term funds. Hence, they provide funds for short term and mainly work for capital needs.
• Therefore, loans should be disbursed on demand.
• The banker must ensure that the borrower can repay the loan on demand or within a short period of time.
• It depends on the nature of assets owned by the borrower and pledged to the banker.
• For example, goods and merchandise are easily marketable, while fixed assets such as land and buildings and certain types of plant and equipment can be liquidated after a period of time.