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Question 9.

Discuss the two main reasons liquidity risk may develop and the advantages and disadvantages of the two main ways a depository institution may attempt to offset its effects.

[20 marks]

Question 10.

Explain the factors influenced the off-balance-sheet activities growth prior to the 2008/9 financial crisis and their decrease afterwards. Discuss also the reasons that although off-balance-sheet activities expose a financial institution to several forms of risks, they may lessen them as well.

[20 marks]

Question 11.

Define the differences between CET1, Tier I, and Tier II capital as being used by Basel III and discuss its major features in relation to capital requirements.