Answer 1: The risk return trade off states that the potential return rises with an increase in the risk. It means more an investor will step towards risky assets, his return will also increase simultaneously. This can also be explained as with more risk more return comes in and vice a versa. The risk return trade off graph plotted with risk on the X axis and return being on the Y axis is an upward sloping line indicating a positive relation between the two. Investors use risk return trade off as an one of the essential components of each of the investment decision as well as assessing their portfolio as a whole. This plays an important role in liquidity risk management also. When we talk about liquidity risk management, the name of banks strikes in our mind immediately. Banks are highly liquid financial institutions thus the role of liquidity management also turns important. Risk return trade off plays an important role here. Banks who are engaged in forex trading should not take up risky investments because the money that they invest is of the customers and making risky investment with a view to earn higher profit would be putting the faith of the customers at stage. Hence they should keep in mind the risk return trade off possibility.

Answer 2: Insolvency: The inability to meet the debts and defaulting on payments that are necessary to be paid is termed as insolvency. In other words it also means a situation where

Illiquidity: A situation where the borrower or any individual runs into shortage of cash to meet the current demand is termed as illiquidity.

The relationship between illiquidity and insolvency is that both represent shortage or having no cash in hand. In both the terms the debt value exceeds the savings.

Answer 3:

bank management refers to the process of managing the Bank’s statutory activity. Bank management is characterized by the specific object of management - financial relations connected with banking activities and other relations, also connected with implementation of management functions in banking.

The main objective of bank management is to build organic and optimal system of interaction between the elements of banking mechanism with a view to profit.

A bank's management is reliable under the following characteristics:

• management expertise in strategic analysis, planning, policy development and management functions;
• quality of planning;
• risk management (credit, interest rate and currency risks);
• liquidity management;
• management of human resources