3
AssignmentMultiple Choice

Organization and Structure of the Banking Industry

Question 3 • (AG Q4) Financial Literacy: 25-26 (JRush)

Analysts are looking at a bank’s liquidity ratio. The key information they will be most interested in will most likely be _____.

Answer
A
the bank’s total cash or near-cash assets
B
receivables turnover in a 30-day period
C
proportion of high-quality liquid assets
D
percentage of total account holder obligations

Explanation

A bank’s liquidity ratio is most informative when it shows how much of its short-term obligations can be covered by liquid assets. High-quality liquid assets are assets that can be converted to cash quickly with little loss of value, so the proportion of these assets is the most relevant measure. Total cash or near-cash assets alone do not show how they compare with obligations.

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