Explanation:
D is correct. Liquidity sources are classified as to their ability to provide funding for the bank to run its day-to-day operations, achieve its strategic objectives and meet financial obligations such as redemption requests during a period of financial stress. Assets classified as restricted liquidity assets are tied to another exposure, such as collateral pledged against a loan. These assets cannot be used for the bank to provide funding unless the original exposure (in this case the loan) is paid off or is paid down far enough to no longer require the collateral.
A is incorrect. Assets used to fund the bank’s day-to-day operations are considered operational liquidity.
B is incorrect. These assets are considered strategic liquidity.
C is incorrect. These assets do not fit any of the classifications, since they are less liquid.
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A
High-quality liquid assets required to fund the bank’s day-to-day operations
B
Cash and money-market instruments allocated to finance the bank’s expansion into new geographic regions
C
A position in mortgage-backed securities held within a special purpose vehicle established by the bank
D
US Treasury notes pledged as collateral against a large wholesale loan taken by the bank
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