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Q-5. Which of the following statements regarding liquidity risk is correct?
A
Asset liquidity risk arises when a financial institution cannot meet payment obligations.
B
Flight to quality is usually reflected in a decrease in the yield spread between corporate and government issues.
C
Yield spread between on-the-run and off-the-run securities mainly captures the liquidity premium, and not the market and credit risk premium.
D
Funding liquidity risk can be managed by setting limits on certain asset markets or products and by means of diversification.
