Question

Risk exposure due to heavy short-term borrowing can be compensated for by

A. carrying highly liquid assets.

B. carrying many illiquid assets.

C. carrying longer term, more profitable current assets.

D. carrying more receivables to increase cash flow.

Answer 1

Carrying highly liquid assets can compensate for risk exposure due to heavy short-term borrowing.

Step-by-step explanation:

The risk exposure due to heavy short-term borrowing can be compensated for by carrying highly liquid assets. This means that holding assets that can easily be converted into cash, such as cash itself or highly marketable securities, can help mitigate the risk. It provides the bank with the necessary liquidity to meet its short-term obligations even if there is a high level of loan defaults.