Profitability and liquidity:
To be in a position to satisfy needs for money as when they’ve been made a bank should never just organize to own enough money available however it additionally needs to circulate its assets in a way that a few of them could be easily changed into money.
Therefore, the bank’s cash reserves can be strengthened quickly in the function of heavy drawings to them. Assets that are easily convertible into money are known as fluid assets, probably the most fluid cash that is being. The shorter the size of that loan the greater amount of liquid as it will quickly grow and start to become repayable in money; the less profitable because, other activities being equal the interest differs straight using the lack of liquidity skilled by the loan provider.
Hence a bank faces one thing of the dilemma in attempting to secure both profitability and liquidity.