Question: (a) Explain two methods by which a depository institution can offset the liquidity effects of a net deposit drain of funds or the exercise of

(a) Explain two methods by which a depository institution can offset the liquidity effects of a net deposit drain of funds or the exercise of loan commitments. What are the operational benefits and costs of each method? [4 marks] (b) Suppose you are managing a liquid assets portfolio. Suppose you forecast interest rates to increase. Carefully explain which of the following techniques you think is the best approach to take: (1) Ladder of maturity approach (ii) Barbell approach (iii) Riding-the-yield curve [6 marks]

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