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2.4 Financial markets and monetary policy (A-level only)

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Question 46

Following a tightening of macroprudential regulation, a commercial bank is required to increase its holding of High-Quality Liquid Assets (HQLA). To achieve this, the bank liquidates a substantial portion of its portfolio of illiquid, high-yield development-finance loans and reinvests the proceeds into short-term sovereign treasury bills.

Which of the following describes the most likely impact of this portfolio rebalancing on the bank's liquidity and profitability?

A

Liquidity worsens and profitability improves

B

Liquidity improves and profitability worsens

C

Liquidity and profitability both improve

D

Liquidity and profitability both worsen

Markscheme

2.4 Financial markets and monetary policy (A-level only) Questions

A Level
Economics
2.4 Financial markets and monetary policy (A-level only)

176 exam-style questions on AQA A Level Economics 2.4 Financial markets and monetary policy (A-level only), covering 2.4.1 The structure of financial markets and financial assets, 2.4.2 Commercial banks and investment banks, 2.4.3 Central banks and monetary policy, and 2.4.4 The regulation of the financial system. Each one has a worked solution and a mark scheme showing where the marks go.

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