Shiftability theory is developed in 1918 by M.G Mouton and published on his article named ‘Commercial banking and capital formation.
- Bank must arrange portfolio in such a way that it can have desired liquidity.
- Most investment is made in secondary money market securities so that liquidity can be achieved at a little/very insignificant amount of loss of value.
- Here investment money market securities includes, treasury bill, commercial paper and securities issued by reputed companies.
- Bank can also get cash from central bank in case of difficulty simply by keeping the instruments as security.
The shiftability has reduced the necessity of holding reserve of huge amount of idle cash balance. It has presented an alternative way of real bill doctrine/theory where there is possibility of risk because of economic depression in the case of buying and selling of commercial goods and raw material. With the help of shift ability theory the probability of income can be increased and the probability of risk can be reduced.
More from this Section
- Revocable Documentary Credit
Revocable Documentary Credit as the name implies, the fundamental difference between this ...
- Prime rate
Prime rate is an administered interest rate on loans quoted by leading banks and usually ...
- Insurance policy
Insurance policy is a legal contract that transfers risk from one party (the insured) ...
- Consumer durable expenditure
Consumer durable expenditure is the spending by consumers on durable items such as automobiles ...
- Investment banker
Investment banker refers financial expert who handles the sale of new stock or bond offers; ...