Which of the following observations is NOT true?[Fill in the blank]

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BlackTom AI · Accepted Answer

This question asks which observation is NOT true, so we will evaluate each option to determine its accuracy and identify the statement that does not align with typical liquidity management practices.
Option a: 'Traditionally, bank managers have relied on purchased liquidity management as the primary mechanism of liquidity management.' This statement asserts that buying liquidity (e.g., via markets or credit facilities) was the main tool historically. In practice, traditional liquidity management relied more on stored liquidity, such as high-quality liquid assets, reserve requirements, and stable deposits, with purchased liquidity playing a supplementary or emergency role. Therefore, describing purchased liquidity management as the primary mechanism historically is likely inaccurate.
Option b: 'The largest banks with access to the money market and other nondeposit markets for funds rely on purchased liquidity management to deal with the risk of cash shortfalls.' For large banks with broad access to wholesale funding, using purchased liquidity sources to cover shortfalls is a common and expected practice, making this statement generally true.
Option c: 'Today, many banks rely on purchased liquidity management to deal with the risk of cash shortfalls.' In the modern environment, institutions increasingly use wholesale markets and facilities to manage liquidity, especially during stress periods; this statement can be considered true in many contexts, though the emphasis may vary by institution.
Option d: 'Purchased liquidity management and stored liquidity management are ways of managing a drain on deposits.' Both approaches are recognized as strategies to address liquidity drains, so this statement is true.
Overall, the statements present a contrast between traditional emphasis, current practice, and the roles of different liquidity tools. The statement that most clearly diverges from the traditional emphasis on stored liquidity and treats purchased liquidity as the primary historical mechanism is option a, which is why it stands out as not true when comparing these concepts.

Which of the following observations is NOT true?[Fill in the blank]

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