Explanation:
Narrowing debt or CDS spreads is generally a positive signal reflecting improved creditworthiness and abundant liquidity. Conversely, widening spreads would serve as a red flag indicating potential liquidity or credit issues. All other options are valid red indicators in a Liquidity EWI dashboard.
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20.4.1. Liquidity Early Warning Indicators (EWI) can be compared to an automobile's dashboard signal system where the appearance of a red light points our attention to something that may become a problem if not addressed. Each of the following is a credible red indicator (aka, red flag) in a Liquidity Early Warning Indicator (aka, Liquidity EWI) dashboard EXCEPT which is not a red (red flag) liquidity indicator?
A
Narrowing debt/CDS spreads
B
Sudden increase in debt costs
C
Sudden growth in assets accompanied by volatile liabilities
D
Rapid decline in the weighted average maturity of liabilities
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