Explanation:

In the context of intraday liquidity management, financial institutions can source liquidity from central banks and money market counterparties/clients through mechanisms like repurchase agreements (repos). By entering into repo transactions with clients or broker-dealers, the bank is able to convert highly liquid unencumbered assets, such as US Treasury bills, into intraday cash.

Option A is incorrect because daylight/intraday overdrafts are generally permitted by the Federal Reserve (subject to collateral and net debit caps), not prohibited.
Option C is incorrect because money market assets held in a bank's investment portfolio are typically stable, highly liquid, and easy to forecast.
Option D is incorrect because funding of nostro accounts is a core treasury management function driven by overall expected cash flows and payment clearing needs, rather than being directly initiated by individual clients taking loans.

Question A junior treasury analyst at a US-based regional bank is evaluating the way in which the bank conducts intraday transactions and the impact of these transactions on the bank's liquidity profile. The analyst considers different sources and uses of liquidity for the bank and how the bank can incorporate its expected intraday liquidity needs into its internal planning process. Which of the following observations would be correct for the analyst to make?

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Last updated: July 5, 2026 at 07:28

Intraday overdrafts of liquidity are prohibited by regulators, but the bank can borrow from the Federal Reserve before the opening of business each day to resolve expected liquidity needs.

The bank's clients can serve as a source of intraday liquidity, which allows the bank to convert liquid assets such as US Treasury bills to cash.

The balance of money market assets held in the bank's investment portfolio will tend to be relatively volatile and is therefore difficult to forecast on any given day.

Funding of nostro accounts at correspondent banks is typically initiated by clients entering into loans or repo transactions.

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