Bank XYZ wishes to raise its liabilities by $30m to cover its long-term lending for the next quarter. It can raise the funds via the issuance of…

Bank XYZ wishes to raise its liabilities by $30m to cover its long-term lending for the next quarter. It can raise the funds via the issuance of either 90-day certificates of deposit or 5-year bonds. Discuss how the bank’s choice of liability can:

(a)             directly affect its liquidity risk;

(b)             indirectly affect its credit risk