1.1 BACKGROUND OF STUDY
A bank is set to be liquid when there is sufficient cast and cash transferable assets including investment in securities that are easily realizable at a short notice without loss to the bank, together with the ability to raise fund quickly from other sources to enable it to meet its payment obligations and financial commitment in a timely manner, but in community a bank security investment is not realizable since they appoint securities individually (i.e. not from an organization concern for provision of security) so security is excluded in liquid of community banks. In addition, there should be sufficient liquidity buffer to meet almost all financial emergencies.
Liquidity management of commercial banks is a very vital issue in the banking industry. It is the ability of the bank to manage it liquidity position so that the liquidity and profitability will not suffer. But for this to be effective, liquidity management must contribute to the achievement of the overall co-operate fund management objectives for attaining and maintaining a balance of profitability, solvency and liquidity.
The obligation of maximum liquidity owed by surplus units can only be achieved by holding all ingestible funds as cash since it has maximum profitability, the bank must invest all funds in loan and overdraft which is considered the average fielding and most liquid of all assets of the banks.
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