The correct answer is C.

The Hot money ratio is not a negative liquidity indicator. This ratio is used to determine whether an institution has balanced its volatile liabilities with the money market instruments it holds. These instruments can be quickly sold to cover liabilities if necessary. Therefore, a high hot money ratio can indicate a strong liquidity position as the institution has a significant amount of liquid assets that can be quickly converted into cash to meet its short-term obligations. This is contrary to the concept of a negative liquidity indicator, which typically signifies potential liquidity risks or problems.

Choice A is incorrect. The Capacity ratio is indeed a negative liquidity indicator. It measures the proportion of an institution's assets that are financed by debt, and a higher ratio indicates greater financial risk due to potential difficulties in meeting debt obligations.

Choice B is incorrect. The Pledged securities ratio also falls under the category of negative liquidity indicators. This ratio represents the proportion of an institution's assets that are pledged as collateral for loans or other obligations, and a higher ratio suggests increased risk due to reduced flexibility in managing those assets.

Choice D is incorrect. As explained above, both Capacity Ratio and Pledged Securities Ratio are negative liquidity indicators, hence this option cannot be correct.

Things to Remember

• Liquidity risk is the risk that a company or financial institution may be unable to meet its short-term financial obligations due to an inability to convert assets into cash quickly enough.
• Capacity ratio is calculated as total liabilities divided by total assets, and a higher ratio indicates higher financial risk.
• Pledged securities ratio is calculated as pledged securities divided by total assets, and a higher ratio indicates reduced flexibility in managing assets.
• Hot money ratio is used to assess the balance between volatile liabilities and liquid